SCF

Question 1

Are treasury stock transactions part of Financing Activities ?

Answer 1

Yes and items to be included in financing activities are:
(1) Treasury stock transactions/repurchase of treasury stock (2) Issuance of common and preferred stock (3) Dividend payments or dividend paid not dividends declared (4) borrowing/issuing and repaying debt (principal payments) e.g. company bonds

Question 2

Examples of non-cash activities that will not impact SCF

Answer 2

1. Conversion of bonds to stock
2. Conversion of common stock to preferred stock
3. Property dividends paid
4. Purchase of property or equipment with note payable

Question 3

Examples of Investing Activities

Answer 3

1. Purchase and sale of long term assets and bonds
2. Purchase and sale of LT investments in debt securities (AFS, HTM)
3. Investment in equity securities (common and preferred stock of OTHER companies)
4. Proceeds from a corporate-owned life insurance policy
5. Collection of principal on loans made by entity

Question 4

Purchase of Certificate of deposit (CD) is part of which activity in SCF?

Answer 4

Cash used by investing activity, however maturity period needs to be looked at to see if it’s cash equivalent (less than 3 months) or investing activity.

Question 5

Increase in Allowance for credit losses will be included in which activity in SCF?

Answer 5

It’s a noncash expense, to be added back in OPERATING ACTIVITY in case of increase in allowance for credit losses.

Question 6

How will Amortization of intangibles be reported in SCF?

Answer 6

Cash flow from operating activities

Question 7

Amortization of bond discount on long term debt

Credit loss expense is added back, Warranty or bad debt is added back.

Subtract Premium to determine Cash flow from Operating Activity

Answer 7

It’s a noncash item that increases interest expense which results in a lower NI. To be ADDED to operating activities.

(DISCOUNT IS ADDED TO BOND INT WHEN CALCULATING EPS NUMERATOR AND PREMIUM IS SUBTRACTED)

Interest expense XXX
Cash XXX
Discount on Bonds Payable XXX

Question 8

Formula of Cost of Goods Manufactured

Answer 8

Cost of goods manufactured = COGS + Ending finished goods inventory - Beginning finished goods inventory

Question 9

Will purchase of commercial paper be part of SCF?

Answer 9

No, however, cash equivalents are included in cash balances.

Cash equivalents (e.g. Treasury bills, money market funds, commercial paper) are short-term, highly liquid investments that are readily convertible into cash and have a maturity date of 3 months or less. Purchase or sale of a cash equivalent is part of the entity’s cash management activities and not part of operating, investing or finance activities.

Question 10

Supplementary disclosures to the SCF

Answer 10

1. Conversion of debt to equity (represents significant financing activity but does not involve cash)
2. The financial accounts (company’s cash equivalents policy)
3. Any restrictions affecting the accounts (pledged receivables)
4. Summary of noncash transactions affecting investing and financing activities

Question 11

Non-trade notes payable increase will be part of which section under SCF

Answer 11

Financing activity

Question 12

Using Indirect method where should the cash paid for interest be reported?

Answer 12

ONLY INTEREST paid on DEBT is OPERATING ACTIVITY. Rest, other interest paid must be reported as a supplementary disclosure.

Question 13

Is treasury note included in Financing activities?

Answer 13

No, Treasury note is not part of Financing activities, treasury STOCK is.

Question 14

Collection of a note receivable from a related party is part of which activity?

Answer 14

Investing activity in SCF

Question 15

Important point: Need to be careful with Treasury Note vs. Treasury Stock in SCF

Answer 15

Treasury note is cash equivalent

Question 16

Examples of items to be disclosed in the related disclosures of cash flow

Answer 16

Examples of non-cash investing and financing transactions include converting debt to equity, acquiring assets through direct liabilities, acquiring an asset through a FINANCE LEASE, and exchanging non-cash assets or liabilities for other non-cash assets or liabilities.

Question 17

Increase in allowance for CREDIT LOSSES should be reported as a _______________

Answer 17

as an addition to NI in cash flow statement

Question 18

Where should DTL be reported in SCF

Answer 18

Part of Operating Activity

Question 19

Cash retained as a result of excess tax benefits in connection with share-based payments to employees should be recognized under which activity in SCF

Answer 19

As a Cash Inflow from Financing Activity

Question 20

Finance lease monthly payments to be reported as

Answer 20

An outflow from finance activity

Question 21

Major repairs to PP&E is part of which activity

Answer 21

Investing Activity

Question 22

Common stock purchased from another company is part of __________ activity

Answer 22

Investing

Question 23

Dividends and Interest received related to investments are part of __________________

Answer 23

Operating Activity

Question 24

Sale of short term securities or investment (less than 1 year) is part of ___________ activity (e.g. ST inv sold for 5k)

Answer 24

OPERATING

Question 25

Dividends payable is not part of Financing activities but ________ is

Answer 25

Dividends PAID

Question 26

Investment in company carried on equity basis is ________

Answer 26

an OPERATING activity

Question 27

Decrease in tax payable

Answer 27

is subtracted

Question 28

Cash flow per share should not be disclosed as supplemental activity

Answer 28

Not required

Question 29

DIVIDEND INCOME is already added in NI

Answer 29

Do not need to add to operating activity when NI is provided

Question 30

Cap expenditures impact only investing activities

Answer 30

True

Question 31

Purchase of BONDS PAYABLE (investment in the debt of others) is part of which activity?

Answer 31

It’s an investing activity.

Question 32

Grant of Stock Options on May 1, Yr 2 vesting equally during the next 3 years. To be purchased at $8 per share. FV of option was $27000 on the date of grant

Answer 32

Grant of stock options to be reported on a pro-rated basis at FAIR VALE (27000/3)*(8/12) = $6000 OPERATING ACTIVITY

Question 33

The company sold merchandise to a significant customer in November of Year 1 and received cash of $5,000 and a note for $60,000 payable in 95 days. The note was paid when due in Year 2. How should it be reported in SOCF in Year 2?

Answer 33

Sales revenue is an operating item reported on the income statement. Therefore, sales collections are an operating activity. (5000 was received in Year 1, therefore nothing to be reported)

$60,000 Note Receivable to be reported as OPERATING ACTIVITY from sale of MERCHANDISE.

Question 34

In SEPTEMBER Year 2, The company purchased land and a building. The purchase price consisted of $20,000 cash and 6,000 shares of the company’s no par common stock. The FV of the stock on the closing date of this transaction was $5 per share.

Answer 34

Cash 20k = Investing activity outflow (-)
Common Stock (Non cash item) = 30k (6000 shares * $5 per share supplementary disclosure)

Question 35

Accrual of interest expense

Answer 35

As an addition to NI

Question 36

Accrual of interest revenue

Answer 36

Not reported on SOCF as no amount/cash was collected, it was just accrued.

Question 37

Cash received for permanent investment is a ____________ activity

Answer 37

FINANCING

Question 38

Retiring of bonds is an Outflow from ____________

Answer 38

FINANCING activity