Reporting Issuance and Retirement of Long-Term Debt On the basis of the details

Question

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 A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year.statement of cash flows, assuming no gain or loss on retiring the bonds:

Item

Retire bonds $

Issue bonds $

Amortization of discount $

ACCOUNT Bonds Payable ACCOUNT NO. Balance Date Item Debit Credit Debit Credit 2016 Jan. 1 Balance 470,000 Jan. 2 Retire bonds 94,000 376,000 June 30 Issue bonds 282,000 658,000

Explanation / Answer

Retirement of Bonds: Retirement of bonds is certainly a financing activity. We are repaying the bond amount to the bondholders. Cash outflow is there since we are paying cash to bondholders. The item is deducted.

Issuance of Bonds: Issuance of bonds is also a financing activity since a long-term liability is aroused. Cash inflow is there as we are selling bonds to investors and receiving cash. This item is added.

Amortization of Discount: Amortization of discount is a non-cash item. This item is not considered when we are following indirect method while preparing cash flow statement

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