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Researching Accounting Standards: Dissenting Views and the Statement of
The preparation of cash flow statements is required by generally accepted accounting principles. This accounting standard was initially adopted by a four-to-three vote of the FASB. Several members of the Board took exception to various aspects of the statement including (1) the classification of interest and dividends received and interest paid as cash flows from Operations and (2) the use of the indirect method.
Required:
Obtain the Statement of Financial Accounting Standards No. 95 (FAS 95) from the FASB website. Go to www.fasb.org, highlight the “Standards” tab, select “Pre-Codification Standards,” select “Statement of Financial Accounting Standards No. 95,” and click on the “As Issued” link.
How did dissenting members of the FASB prefer that interest and dividends received and interest paid be classified? (See the section following paragraph 34 of the full text of Statement No. 95.) How did the FASB justify classifying these items as cash flows from operations?
(See paragraph 90 of Statement No. 95.)
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Cornerstones of Financial Accounting
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- The comparative balance sheet and income statement of Sign Language Hearing Co Ltd, have just been prepared and presented to the owners by the company’s Accountant. The owners are concerned about the movement in the company’s cash and cash equivalent given that the balance sheet does not show or explain the reason or reasons why there was an increase or decrease in this area. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the owners. REQUIREMENTS Prepare a complete statement of cash flows for October 2021 using the indirect method based on the information and guidance provided above.arrow_forwardThe comparative balance sheet and income statement of Sign Language Hearing Co Ltd, have just been prepared and presented to the owners by the company’s Accountant. The owners are concerned about the movement in the company’s cash and cash equivalent given that the balance sheet does not show or explain the reason or reasons why there was an increase or decrease in this area. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the owners. The owners are requesting clarification and have put presented the following financial information. In comparison to investing and financing activities, it is often said that cash from operating activities must be the main source of cash to achieve long term success of the company. Do you agree or disagree with this statement? Give reason or reasons to support your answer taking into consideration the possible consequences of the cash being…arrow_forwardThe comparative balance sheet and income statement of Sign Language Hearing Co Ltd, have just been prepared and presented to the owners by the company’s Accountant. The owners are concerned about the movement in the company’s cash and cash equivalent given that the balance sheet does not show or explain the reason or reasons why there was an increase or decrease in this area. The company uses the indirect method to prepare the statement of cash flows and it is expected that this should be able to provide the needed clarity required by the owners. The owners have asked each student from your accounting course to assist with the needed clarification and have put forward the following financial information Financial info to be used by surnames with initials (K, Q, M, F) Sign Language Hearing Co Ltd Comparative Balance Sheet October 31, 2020, and 2021 2021 2020 Assets Cash and cash equivalent 320,000 275,000 Accounts…arrow_forward
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