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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Reporting issuance and retirement of long–term debt

On the basis of the details of the following bonds payable and related discount accounts, indicate the items to be reported in the financing activities section of the statement of cash flows, assuming no gain or loss on retiring the bonds.

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To determine

Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

To Indicate: The items to be reported on the statement of cash flows.

Explanation

Working note:

Calculate the amount of cash from issuing bonds payable:

Cash from issuing bonds payable=( Issuance of bonds - Discount on bonds payable )=($450,000+$30,000)=$420,000

Calculate the amount of cash used to redeem bonds payable:

Cash used to redeem bonds payable=( Retire bonds of debit balance - Retire bonds of credit balance )=($150,000$12,000)=$138,000

Cash flows from operating activity represent the net cash flows from the general operation of the business by comparing the cash receipt and cash payments.

The below table shows the way of calculation of cash flows from operating activities:

Cash flows from operating activities (Indirect method)
Add: Decrease in current assets
Increase in current liability
Depreciation expense and amortization expense
Loss on sale of plant assets
 
Deduct: Increase in current assets
Decrease in current liabilities
Gain on sale of plant assets
Net cash provided from or used by operating activities

Table (2)

Cash provided by or used in investing activities is a section of statement of cash flows. It includes the purchase or sale of equipment or land, or marketable securities, which is used for business operations

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