SCF Flashcards
Are treasury stock transactions part of Financing Activities ?
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
Examples of non-cash activities that will not impact SCF
- Conversion of bonds to stock
- Conversion of common stock to preferred stock
- Property dividends paid
- Purchase of property or equipment with note payable
Examples of Investing Activities
- Purchase and sale of long term assets and bonds
- Purchase and sale of LT investments in debt securities (AFS, HTM)
- Investment in equity securities (common and preferred stock of OTHER companies)
- Proceeds from a corporate-owned life insurance policy
- Collection of principal on loans made by entity
Purchase of Certificate of deposit (CD) is part of which activity in SCF?
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.
Increase in Allowance for credit losses will be included in which activity in SCF?
It’s a noncash expense, to be added back in OPERATING ACTIVITY in case of increase in allowance for credit losses.
How will Amortization of intangibles be reported in SCF?
Cash flow from operating activities
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
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
Formula of Cost of Goods Manufactured
Cost of goods manufactured = COGS + Ending finished goods inventory - Beginning finished goods inventory
Will purchase of commercial paper be part of SCF?
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.
Supplementary disclosures to the SCF
- Conversion of debt to equity (represents significant financing activity but does not involve cash)
- The financial accounts (company’s cash equivalents policy)
- Any restrictions affecting the accounts (pledged receivables)
- Summary of noncash transactions affecting investing and financing activities
Non-trade notes payable increase will be part of which section under SCF
Financing activity
Using Indirect method where should the cash paid for interest be reported?
ONLY INTEREST paid on DEBT is OPERATING ACTIVITY. Rest, other interest paid must be reported as a supplementary disclosure.
Is treasury note included in Financing activities?
No, Treasury note is not part of Financing activities, treasury STOCK is.
Collection of a note receivable from a related party is part of which activity?
Investing activity in SCF
Important point: Need to be careful with Treasury Note vs. Treasury Stock in SCF
Treasury note is cash equivalent
Examples of items to be disclosed in the related disclosures of cash flow
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.
Increase in allowance for CREDIT LOSSES should be reported as a _______________
as an addition to NI in cash flow statement
Where should DTL be reported in SCF
Part of Operating Activity
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
As a Cash Inflow from Financing Activity
Finance lease monthly payments to be reported as
An outflow from finance activity
Major repairs to PP&E is part of which activity
Investing Activity
Common stock purchased from another company is part of __________ activity
Investing
Dividends and Interest received related to investments are part of __________________
Operating Activity
Sale of short term securities or investment (less than 1 year) is part of ___________ activity (e.g. ST inv sold for 5k)
OPERATING
Dividends payable is not part of Financing activities but ________ is
Dividends PAID
Investment in company carried on equity basis is ________
an OPERATING activity
Decrease in tax payable
is subtracted
Cash flow per share should not be disclosed as supplemental activity
Not required
DIVIDEND INCOME is already added in NI
Do not need to add to operating activity when NI is provided
Cap expenditures impact only investing activities
True
Purchase of BONDS PAYABLE (investment in the debt of others) is part of which activity?
It’s an investing activity.
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
Grant of stock options to be reported on a pro-rated basis at FAIR VALE (27000/3)*(8/12) = $6000 OPERATING ACTIVITY
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?
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.
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.
Cash 20k = Investing activity outflow (-)
Common Stock (Non cash item) = 30k (6000 shares * $5 per share supplementary disclosure)
Accrual of interest expense
As an addition to NI
Accrual of interest revenue
Not reported on SOCF as no amount/cash was collected, it was just accrued.
Cash received for permanent investment is a ____________ activity
FINANCING
Retiring of bonds is an Outflow from ____________
FINANCING activity
