Guarantor Analysis, Global Cash Flow, and the Second Way Out
Q: Why didn't we do anything with the 2018 capital contributions of $4,112,432 on the Sequoia Properties Schedule K-1 for Mr. Schumacher?
A: This $4,112,432 is a non-cash contribution to Sequoia Properties in 2018. Mr. Schumacher instead converted personal loans made to Sequoia Properties in prior year(s) to equity during 2018 via simple accounting entries. No cash changed hands during 2018.
The transaction is also cited in Note 4 to the Sequoia Properties financial statements and makes this point, i.e., "During the year, Mr. Schumacher converted $4,112,432 of personal loans from long-term debt to equity." Although the company’s leverage position improved significantly, there was no impact on the cash position of Sequoia Properties or Mr. Schumacher.
Course overview: Guarantor Analysis, Global Cash Flow, and the Second Way Out