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Go with the Flow Inc. Case

In: Business and Management

Submitted By blaze4yu
Words 1297
Pages 6
TO: Go With the Flow Inc.
FROM: Olivia Bogle, Laura Cox, J.T. Mack, and Erica Patterson
RE: Statement of Cash Flows

Background

Go With the Flow Inc. (Go With the Flow) designs, manufactures, and sells a large variety of mobile network and communication products. The company’s communication devices include mobile, cordless, and corded telephones. Go With the Flow’s liquidity primarily comes from the company’s cash flows, debt and revolving credit facilities, and the sale of trade accounts receivables. Three of the company’s cash flow transactions are insurance settlement proceeds, sale of accounts receivable, and acquisition of property, plant, and equipment on account. This memo will analyze each transaction under Financial Account Standards Board’s (FASB) Accounting Standards Codification (ASC) 230, Statement of Cash Flows. This memo will also appropriately classify each transaction and discuss any timing issues related to the Statement of Cash Flows.

Insurance Settlement Proceeds

Issue
What is the proper classification for the statement of cash flows related to insurance proceeds?
Analysis

A tornado destroyed one of the company’s manufacturing facilities, in turn; Go With the Flow received a $20 million settlement from an insurance carrier in the current year. The company decided not to rebuild the facility, instead, they will use the insurance proceeds to fund a defined-benefit pension plan. According to ASC 230-10-45-12, directly related insurance proceeds on a damaged or destroyed building is an investing activity for the statement of cash flows.

These insurance proceeds are not financing activities because according to ASC 230-10-45-14, financing activities come from debt instruments such as notes and bonds, or long and short-term borrowing. Insurance proceeds are the result of a settlement, not issuing debt or borrowing.

The…...

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