Each year, White Mountain Enterprises (WME) prepares a reconciliation schedule t
ID: 2525428 • Letter: E
Question
Each year, White Mountain Enterprises (WME) prepares a reconciliation schedule that compares its income statement with its statement of cash flows on both the direct and indirect method bases.
In its 2018 income statement, WME reported $11,000 of interest expense on its outstanding bonds. During the year, WME paid its regular installments of $9,000 of interest in cash. In its reconciliation schedule, WME should:
Multiple Choice
Show a $2,000 positive adjustment to net income under the indirect method for the decrease in bond premium.
Show a $2,000 negative adjustment to net income under the indirect method for the decrease in bond premium.
Show a $2,000 positive adjustment to net income under the indirect method for the decrease in bond discount.
Show a $2,000 negative adjustment to net income under the indirect method for the decrease in bond discount.
Explanation / Answer
Show a $2,000 positive adjustment to net income under the indirect method for the decrease in bond discount.
This happens because when interest expense is more than the actual cash paid, then, the effective interest rate is exceeds the stated interest rate. thus, the bond was sold at a discount.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.