Q: What was the answer for Poll Question 1?
A: Poll Question 1 is as follows:
"If all personal financial transactions were recorded on the historical cost basis, it would be possible to construct a complete personal cash flow statement."
The correct response is “Agree”.
If all personal financial transactions were recorded on the historic cost basis, it would be possible to construct a complete personal cash flow statement. With complete historic cost information – information about the actual amount paid for an asset – we could calculate fixed asset and investment spending. We cannot do so when a guarantor reports market value for personal assets, which is his or her estimate of the current value of the asset rather than the original acquisition price.
Q: How did you get $319,870 for cash from the Schedule K-1 issued by Total Coverage, Inc.?
A: The $319,870 is the sum of $252,616 of distributions and $67,254 of loans to the owner. The information about distributions came from Line 16D in Part III of the Schedule K-1 and the loan to the owner came from the company's balance sheet and not from Schedule K-1. Schedule K-1 does not capture loans to owners, but it will capture loan repayments by the company to owners who have provided loans to the company.
Q: Don't the Schedules K-1 themselves come from the company? The distributions are not shown on the personal income tax returns.
A: Yes. The company issues a Schedule K-1 to each of its owners. The owners use the Schedules K-1 in preparing their personal income tax returns. Distributions are not taxable income to owners, and they are not recorded on the personal income tax returns of owners. Owners report their share of the company's taxable income on Form 1040, such as their share of ordinary business income, their share of interest income, and so forth. Distributions play no role in the preparation of personal income tax returns.
Note, too, that a Schedule K-1 is not part of a personal income tax filing. Lenders must always ask specifically for all Schedules K-1 when asking for personal income tax returns.
Q: With respect to the cash value of life insurance, do we consider it as an immediate source of funds from the partner to support the company during a business cash flow crisis?
A: The insured party can usually receive the cash surrender value of a policy within five days of making a request. The exact timing will depend on the insurance company's rules, regulations, procedures, and provisions in the insurance policy about withdrawing cash value from a policy, but the cash surrender value does represent ready cash as we use the term.
Whole life insurance policies are the most common type of insurance policies that accumulate increasing cash value over time.
Q: Is '"cash value of life insurance" considered available liquid personal assets?
A: Yes. As stated above, the cash surrender value does represent ready cash as we use the term.