Question 19 During 2017, Simms Company redeemed $2,000,000 of bonds payable for

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Question 19

During 2017, Simms Company redeemed $2,000,000 of bonds payable for $1,880,000 cash. Indicate how this transaction would be reported on a statement of cash flows, if at all. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Question 19

During 2017, Simms Company redeemed $2,000,000 of bonds payable for $1,880,000 cash. Indicate how this transaction would be reported on a statement of cash flows, if at all. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

Explanation / Answer

Redemption of Bonds payable states that Cash has been paid.

Cash paid = $1,880,000
Liability gone = $2,000,000
Discount on redemption added to Income Summary = $120,000

In Cash Flow Statement,

1. $120,000 amount of discount will be reduced from Net Income under ''Operating Activities'' section.
2. Under "Financing Activities", repayment of bonds will be shown for $1,880,000 with a 'negative' sign as this shows Cash Outflow.

PART of Cash Flow Statement will appear like this:

Net Income XX Adjustments to reconcile net Income Cash Generated by Operating activities XX XX Discount on bonds redemption $(120,000) Cash Flow from Operating Activities XX Cash Flow from Financing activites: XX XX Bonds redemption $(1,880,000) Cash Flow from Financing actcivitie XXX

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