Research Case 21–9
Requirement 1
The specific citation that specifies the classification of notes payable to suppliers is
Requirement 2
Specifically, paragraph 45–17a states that cash outflows for operating activities
Requirement 3
Analysis Case 21–10
Requirement 1
BT’s statement of cash flows, prepared in accordance with IFRS, classifies cash
Requirement 2
BT reports interest received and dividends received as investing activities and
dividends paid and interest paid as financing activities. IAS No. 7 allows
U.S. GAAP designates (a) interest payments and interest received as operating cash
Target Case
Requirement 1
Cash flows from operating activities are both inflows and outflows of cash that
result from the same activities that are reported in the income statement. The
Requirement 2
Depreciation and amortization are noncash expenses. They are merely an
allocation in the current period of prior cash expenditures (for the depreciable or
Requirement 3
A sizable increase in the amount Target owes its suppliers is a contributor to
Target’s cash flows from operating activities being higher than net income in each
Target Case (continued)
Requirement 4
Cash outflows from financing activities exceeded cash inflows from those
activities during each year reported. Even though financing activities are not
Requirement 5
A statement of cash flows reports transactions that cause an increase or a
decrease in cash. Nonetheless, some transactions that don’t increase or decrease
cash, but which result in significant investing and financing activities, must be
1. Acquiring an asset by incurring a debt payable to the seller.
In each of the three years, Target reported:
“Property and equipment acquired through capital [finance] lease
obligations”
Relevant portions of Target’s statements are reproduced below:
Target Case (continued)
Consolidated Statements of Cash Flows
(millions) 2015 2014 2013
Operating activities
Net earnings / (loss) $ 3,363 $ (1,636) $ 1,971
Earnings / (losses) from discontinued operations, net of tax 42 (4,085) (723)
Net earnings from continuing operations 3,321 2,449 2,694
Adjustments to reconcile net earnings to cash provided by
operations:
Target Case (continued)
Investing activities
Expenditures for property and equipment (1,438) (1,786) (1,886)
Proceeds from disposal of property and equipment 28 95 70
Proceeds from sale of businesses 1,875 — —
Target Case (concluded)
Financing activities
Change in commercial paper, net — (80) (890)
Additions to long-term debt — 1,993 —
Reductions of long-term debt (85) (2,079) (3,463)
Dividends paid (1,362) (1,205) (1,006)
Repurchase of stock (3,438) — (1,461)
Air France–KLM Case
Requirement 1
AF’s statement of cash flows, prepared in accordance with IFRS, classifies
Requirement 2
AF reports dividends received as investing activities. It reports dividends paid
as a financing activity. Interest received and interest paid are reported as operating