Cash Flow Statement Disclosure You have been hired as a staff accountant by a small company that recently completed an initial public offering (IPO) of its common stock. At its inception, the company had been financed by Pegasus, an investment group. Pegasus had bought a significant amount of the company’s debt (equal to a third of its total assets) in the form of convertible bonds. The stock price has appreciated significantly since the IPO, and Pegasus has decided to convert its debt securities into equity, giving Pegasus a 28% stake in the company. Your CEO, Dane Hathaway, argues that this conversion should not be reported on the cash flow statement. ‘‘It didn’t involve any cash either way, and it’s not like the structure of our business has changed. We haven’t increased or changed our fixed assets, and we haven’t given anything up.’’ Research the appropriate Codification and draft a memo to Dane explaining whether his reasoning is correct and citing your references.

Answer rating: 100% (QA)

According to the FASB Codification cash flow statements should include all cash inf... View the full answer