F8 - EPS, Cash Flows, and NFP Accounting

Question 1

What statements are Not-for-profit corporations required to produce?

And what are NFP required to disclose?

Answer 1

Statement of Financial position
-- Assets
-- Liabilities
-- Net assets
Statement of activities 
-- Change in total net assets
-- Change in net assets without restrictions
-- Change in net assets with restrictions 
Statement of Cash flows

Disclose/display/separately report:

• Functional expenses
• Natural expenses

Question 2

In statement of cash flows…

How are cash contributions without donor restrictions classified?

How a contribution specifically for the construction of a building classified as?

Answer 2

Operating activities

Financing activities

Question 3

NFP

What is contribution revenue?

Difference between contribution revenue and sales revenue?

i.e. If NFP received $50,000 to sponsor a play and gives away $2,500 worth of those tickets.

Answer 3

Contributions include transaction that are unconditional (NO FUTURE EVENT).

Ticket Sales is 2,500

Contributed Revenue is 47,500 (50k - 2.5k)

Question 4

What is an exchange transaction?

Answer 4

NFP earns resources in exchange for a service performed

Question 5

Hospitals

What are the 3 revenue classifications?

Answer 5

1) Patient Service Revenue
2) Other Operating Revenue
- Educational programs
3) Non Operating Revenue
- Gifts without donor restrictions

Question 6

How are tuition revenues calculated?

And pledges receivable?

Answer 6

• Gross revenues

- Net; so subtract collectibles

Question 7

Indirect Method OCF:

What are the 2 important items to remember on Operating Cash flow under Indirect method?

Also, what are required disclosures on CF statements?

What is excluded and Ignore?

Answer 7

• Add depreciation and subtract gains from sale of PPE

Disclosures:

• Income taxes
• Interest paid

Or anything that doesn’t involve cash transaction like issuing stock to purchase a building

EXCLUDED:
- Cash and Cash equivalents

Ignore:
Cash received
Cash Paid

Question 8

Direct Method OCF:

What is included?

Answer 8

Note if company uses Direct, in the notes, they have to show the indirect method (so they do both) called Reconciliation which is why nobody uses Direct.

Included:
Cash received from customers
- AR inc = no cash received from customers
- Def revenue inc = received cash

Cash paid to suppliers/employee

• Inventory inc = outflow since I paid for it
• AP inc = im paying is outflow
• Operating exp paid in cash
• Interest received/paid
• Dividends received
• taxes paid
• buy/sale of trading securities (current Asset)

Question 9

What does cash flow statement explain?

Investing - what does it mean if an Asset increases?

Financing - how does it increase

What is included in supplemental disclosures in statement of cash flows?

Answer 9

• Explains why cash went up or cash went down

Investing

• Changes in non- current assets
• Means that we bought it so cash goes down

Increase
- issuing debt or stock 
Decrease
- Repay debt, repurchase
- "Pay" dividend

Supplemental disclosures:
1) Criteria for cash equivalent - 90 days of less highly liquid

2) Noncash investing and financing activities
- converting convertible bonds of stock
- purchase asset with note

Question 10

EPS

Difference between diluted EPS and antidilutive?

Answer 10

(NI - Preferred Dividends) / Weighted avg share

Diluted
- Decreases EPS
- convertible stocks/bonds, options and warrants
can be converted into CS

AntiDilutive
- If EPS increases then DO NOT INCLUDE

Question 11

Dilutive

Option/Warrants what happens to numerator in EPS?

What are the 3 steps for solving for dilutived options

1,000 options outstanding
Strike price $30
Market $50

Answer 11

• Numerator does not change. Only # of shares changes.
• Denominator increases by options “in the money”
• How many new shares you need to add to the denominator to dilute EPS.
• Just take the total value of people exercising their options (1,000 x $30 strike price)
• Then divide that by the current market price ($50) cause you’re going to use that money to buy back shares (30,000/$50) = 600
• Last, take total number of options outstanding in the money subtract shares being purchased and that ‘s the number that the denominator is increasing by. 1,000 - 600 = 400 shares added to denomiator in EPS

Question 12

Diluted

What do you have to remember with convertible preferred stock and bonds?

Answer 12

• If you calculated EPS then add back preferred dividends since you don’t have to pay them and add back interest on bonds (NET OF TAX) since you don’t have to pay them.
• Denominator simply add all the new shares that are being issued