SCF / Consolidated Financials / Notes to Financials Flashcards
What are the sections of the statement of cash flows
Operating: normal business operations
Investing: Investing in yourself and others
Financing: Issuing/Repaying Debt
What are examples of Financing activities on the statement of cash flows?
Issuance of common and preferred stock
Treasury stock transactions
Dividend payments
Borrowing and repaying debt (principal payments)….NOT INTEREST
What is added back to net income when calculating the cash flows from operating activities?
Depreciation
Amortization of bond discount and patents
Losses from sale of assets
Decrease in current assets
Increases in current liabilities
What is removed from net income when calculating the cash flows from operating activities?
Equity in earnings from investee
Amortization of bond premium
Gains from sale of assets
Increase in current assets
Decrease in current liabilites
Why is cash flows per share not reported in the statement of cash flows?
Because it is misleading and may lead investors to thinking it can be a dividend payment and a measure of performance.
With consolidated financial statements, what is removed?
Intercompany transactions must be eliminated. The difference between subsidiary’s combined and consolidated line item represents the elimination of intercompany transactions.
What are some examples of investing activities?
Proceeds from held-to-maturity investments
Proceeds from disposal of equipment
Purchase of available-for-sale debt securities
Interest from these activities is reported under the operating activity because it affects net income
How is a conversion of preferred stock to common stock reported on the statement of cash flows?
It is not reported in operating, investing, or financing activities. It is reported as supplementary information in the SCF
How do you solve for cash paid for interst as a supplemental disclosure of cash flow information?
Interest is paid during the year is reported as a supplemental disclosure.
You must take interest expense and add interest payable at the BOY. and subtract interest payable at the EOY
What items are not included in the cash flow from operating activities?
Cash outflow and cash inflow from sale of equipment investing activity and note payables supplementary disclosure
What is an important verbaige to remind yourself of when thinking through the statement of cash flows?
Cash inflow and cash outflow
What must we consider when dealing with intercompany sales?
Ending inventory of subsidiary, the gross profit percentage of the parent, profit in ending inventory of the sub, and consolidating the COGS between Parent and sub
What concept are consolidated financials based on?
Economic substance takes precedence over legal form.
What do we do to a consolidated balance sheet immediately after acquisition/purchase?
Combine assets, eliminate parent investment accound and subs equity, eliminate intercompany transactions.
Take liabilities and equity of parent and subtract out the parents.
When would a subsidiary not be consolidated with the parent?
If the subsidiary is in a legal bankruptcy.
