MEMORANDUM

FROM:
TO:
SUBJECT: Case 1, Buck’s Dilemma: Gross or Net?
DATE: January 16, 2016

KEY FACTS
Buck’s Hunting Equipment Inc. (“Buck”) is a retail business based in Pittsburgh, PA. During Buck’s expansion into West Virginia and southern Ohio, it entered into a three-year revolving line of credit (the “Facility”) with its bank on January 1, 2015. Specific facts and circumstances are as followed:
• The line of credit has a maximum borrowing capacity of $100 million, and under the terms of the agreement, all draws are considered to be due on demand.
• On July 15, 2015, Buck drew $60 million on the Facility.
• On August 30, 2015, Buck drew an additional $40 million on the Facility.
• On September 30, 2015, Buck paid down the draws by $50 million.
• Assume the volume of transactions is considered to be large.

PRIMARY ISSUES
In Buck’s Statement of Cash Flows for the year ended December 31, 2015, should the borrowing and payment activity related to its revolving line of credit be presented as operating, investing, or financing activities? Under US GAAP, should the activities under Facility be presented on a net or gross basis on the statement of cash flows? How about under IFRS?

ANALYSIS
Operating, Investing, or Financing
Buck should present the borrowing and payment activity related to its revolving line of credit as cash flows from financing activities.

According to ASC 230-10-45-14, “all of the following are cash inflows from financing activities: … b. proceeds from issuing bonds, mortgages, notes, and from other short- or long-term borrowing.” The three-year revolving line of credit Buck has with the bank belongs to this set. Therefore, all cash inflows related to this borrowing should be presented as cash flow from financing activities.

According to ASC 230-10-45-15, “all of the following are cash outflows for financing activities: … b.