You have been hired as a staff accountant by a small company that recently completed an initial public offering (IPO) of its common stock. At its inception, the company had been financed by Pegasus, an investment group. Pegasus had bought a significant amount of the companys debt (equal to a third of its total assets) in the form of convertible bonds. The stock price has appreciated significant since the IPO, and Pegasus has decided to convert its debt securities into equity, giving Pegasus a 28% stake in the company. Your CEO, Dane Hathaway, argues that this conversion should not be reported on the cash flow statement. It didnt involve any cash both way, and its not like the structure of our business has changed. We havent increased or changed our fixed assets, and we havent given anything up.

Research the appropriate Codification and prepare a business memo explaining whether Dane's reasoning is correct and citing your references.