cpk123, thanks for providing your solutions. Very helpful!
Nice question and solutions. Agree with the solutions. I am just not sure where “delinquent interest payment” should appear in financial statement. Do not remember reading this. Is it part of current portion of liability which is already counted in working capital change?
Isn’t it something like Interest payable? or expensed interest? CP
disptra Wrote: ------------------------------------------------------- > Nice question and solutions. Agree with the > solutions. > I am just not sure where “delinquent interest > payment” should appear in financial statement. Do > not remember reading this. > Is it part of current portion of liability which > is already counted in working capital change? --are you asking where to find it on the financial statements or how did we come up with that amount from the question? I think cpk123 is right, whatever amount you still owe will be added to interest payable
just to clarify – interest expense and payable would not be under Working capital at all. Working capital = CA - CL. This is an FYI. Increase in WC === means Net (CA - CL) has gone up. So must be deducted from CFO. Decrease in WC === means Net (CA - CL) has gone down, added to CFO.
I have 2 questions on the Judy Picoo problem: 1) To calculate CFO, why is the $200,000 increase in net working capital subtracted? 2) How did you know that the starting cash for 2004 was $1,000,000? Thanks so much.
i agree with you cpk123 interest that was recorded as expense but not paid when it was due. so i guess there is a slight difference than interest payable because interest payable might not be due yet
Sorry, about that–now I see that the cash at end of 2003 was given. But I still do not understand why increase in working capital needs to be subtracted to get CFO.
the one million is given in the problem increase in working capital means that there is an increase in current assets or decrease in current liabilities.decrease of liabilities would mean an outflow reducing the cash flow, and just the same an increase in current assets would probably mean increase in inventories, acc receivable etc which means a decrease of cash flow am I wrong?
good job cpk123!
i remember the CA and CL part as CA – reduce – means source of cash. increase — means use of cash This is opposite sign usage. CL – increase – source of cash — reduce – use of cash This is same sign usage. and WC = net (CA - CL) so if positive - means CA > CL if -ve – CA < CL Hope this helps.
cpk123 Wrote: ------------------------------------------------------- > just to clarify – interest expense and payable > would not be under Working capital at all. > > Working capital = CA - CL. > > This is an FYI. > > Increase in WC === means Net (CA - CL) has gone > up. So must be deducted from CFO. > Decrease in WC === means Net (CA - CL) has gone > down, added to CFO. Interest payable is definitely part of liability (just checked this.) So the current portion of it should be part of CL? I am a bit concerned of double counting of this.
I feel like a fat guy lagging way behind in a marathon, trying to get his friends attention to wait for him. Ok maybe not a fat guy, because that would imply I have never put the concept of ‘running’ into practice, thus I will call myself the guy who is pretty out of shape as I haven’t trained in a while. I’ll be ready next time. 
(I’m sitting at the June 08 exam)
Here were the two statements from the problem: 1. Maui Macadamia had been paying interest only on its long-term debt of $1,000,000, but it was delinquent on one monthly payment at year end. 2. Maui Macadamia’s net working capital increased by $200,000. Given the two above – and the fact that the analyst (and we) are trying to project next year’s statements from the previous year’s data – definitely the 45000/12 = 3750 has not been included in the 200000 Net WC Increase, and needs to be adjusted. This is specific to this problem, and only gathered from the facts. Does that make sense? CP
Increasing working capital is a use of funds, ei. cash was used to fund either a buildup in current assets or a paydown in current liabilities or a combination of both.
Hi guys, this is a good idea, but I think whoever answers the last question should be the one to ask the next one, just to keep things moving.
maybe a cash flow question using indirect method and then using direct method. Does anyone have a good example?
Thank you cpk123 and florinpop. Now I get the part about the change in working capital. I understand about adjusting CFO for changes in Inventory, AR, AP etc, but they threw me off by just saying there was an increase in working capital. I wasn’t thinking.
Which of the following statements about deffered taxes is correct? A: Deffered taxes due to differences in depreciation methods used for reporting and tax accounting never reverses so long as the same methods are adhered to. B: Deffered taxes due to interest earned on tax-exempt bonds are self reversing at the time of maturity of the bond as bond premiums and discounts offset the coupon income over time. C: Tax credits cause permanent differences D: Computation of taxable income is based on the matching principal. To make it interesting, it would be nice if you can provide the reason for refuting the three incorrect choices.
A lease contains a guaranteed residual value (guaranteed by the lessee). How would this amount be treated in determining the amount the lessee capitalizes? A: The amount would be added. B: The amount would be deducted. C: The present value of the amount would be added. D: The present value of the amount would be deducted.