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