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Chapter 23: Q3IFRS (page 1399)

What are some of the key obstacles for the FASB and IASB within their accounting guidance in the area of cash flow reporting? Explain.

Short Answer

Expert verified

FASB prefers to use direct method for showing the operating activities, but it is not mandatory in case of IASB.

Step by step solution

01

Meaning of FASB

FASB is the autonomous, for-profit, private association that develops financial accounting and reporting standards for for-profit and public businesses that follow GAAP.

02

Explaining some of the key obstacles for the FASB and IASB within their accounting guidance in the area of cash flow reporting

The FASB and the IASB are working on a joint project regarding the presentation and arrangement of information in financial statements. The FASB prefers to depict operating cash flows exclusively using the direct approach. The majority of IASB members, however, state that they would rather not mandate the adoption of the direct method for reporting operating cash flows.

Therefore, to release a converged standard for the statement of cash flows, the two Boards will need to reconcile their differences in this regard. Less flexibility exists in U.S. GAAP requirements for cash flow reporting than in IFRS, but this is not a big issue.

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Most popular questions from this chapter

What is the purpose of the statement of cash flows? What

information does it provide?

Stansfield Corporation had the following activities in 2017.

1. Payment of accounts payable \(770,000.

4. Collection of note receivable \)100,000.

2. Issuance of common stock \(250,000.

5. Issuance of bonds payable \)510,000.

3. Payment of dividends \(350,000.

6. Purchase of treasury stock \)46,000.

Compute the amount Stansfield should report as net cash provided (used) by financing activities in its 2017 statement of cash flows.

Red Hot Chili Peppers Co. had the following activity in its most recent year of operations.

(a) Purchase of equipment. (g) Amortization of intangible assets.

(b) Redemption of bonds payable. (h) Purchase of treasury stock.

(c) Sale of building. (i) Issuance of bonds for land.

(d) Depreciation. (j) Payment of dividends.

(e) Exchange of equipment for the furniture. (k) Increase in interest receivable on notes receivable.

(f) Issuance of common stock. (l) Pension expense exceeds the amount funded.

Instructions

Classify the items as (1) operating鈥攁dd to net income; (2) operating鈥攄educt from net income; (3) investing; (4) financing; or (5) significant noncash investing and financing activities. Use the indirect method.

In 2017, Elbert Corporation had net cash provided by operating activities of \(531,000, net cash used by investing activities of \)963,000, and net cash provided by financing activities of \(585,000. At January 1, 2017, the cash balance was \)333,000. Compute December 31, 2017, cash

Bloom Corporation had the following 2017 income statement.

Sales revenue

\(200,000

Cost of goods sold

120,000

Gross profit

80,000

Operating expenses (including depreciation of \)21,000)

50,000

Net income

\(30,000

The following accounts increased during 2017: Accounts Receivable \)12,000, Inventory \(11,000, and Accounts Payable \)13,000. Prepare the cash flows from the operating activities section of Bloom鈥檚 2017 statement of cash flows using the direct method.
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