Merrill Corporation engages in a valid cash flow hedge where it minimizes the ri
ID: 2476787 • Letter: M
Question
Merrill Corporation engages in a valid cash flow hedge where it minimizes the risk from variable interest rated debt by promising to issue dividend payment from both its own portfolio and its portfolio of “outside” marketable securities. Since interest payments normally are classified on the statement of Cash Flows as Operating Activities; payments of dividends from “outside” investments are classified as Investing Activities; and dividend payments from its own stock are financing activities, where should Merrill disclose the cash flows from the above transactions?
Explanation / Answer
Answer
Merrill Corporation engages in a valid cash flow hedge where it minimizes the risk from variable interest rated debt by promising to issue dividend payment from both its own portfolio and its portfolio of “outside” marketable securities.
If this transaction is part of normal operations of Merrill Corporation and related to operating activities of Merrill Corporation, then Merrill Corporation should disclose the cash flows from the above transactions as cash Flows from Operating Activities.
If this transaction is not part of normal operations of Merrill Corporation and not related to operating activities of Merrill Corporation, then Merrill Corporation should disclose the cash flows from the above transactions as cash Flows from financing Activities.