Cash flow statement disclosure

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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 ?nanced by Pegasus, an investment group. Pegasus had bought a signi?cant 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 signi?cantly 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 ?ow 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 ?xed assets, and we haven’t given anything up.’’ Research the appropriate Codi?cation and draft a memo to Dane explaining whether his reasoning is correct and citing your references.

Reference no: EM13953760

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