I'd like to model an issuance of preferred equity which replaces debt by issuing an amount of equity equal to the principal + accrued interest. Accounting-wise I make the following adjustments:
I/S: adjust interest expense
B/S: extinguish principal and accrued interest, replace with equity
CFS: no impact
Q: What adjustment do I make to avoid a CFS impact? Currently my model B/S references Accrued interest from the working capital schedule. When in any given quarter I reduce accrued interest to zero to reflect an equity issuance I end up showing a change in working capital, which then shows a use of cash, and an unbalanceing in the model equal to the change in accrued interest. Do I introduce a Deferred interest expense asset to neutralize the CF impact? Thanks.
If I wanted to get fancy with timing of quarter when issuance and redemption of the preferred debt occurs what logic could help me get there? Thanks.