Kier Company issued $420,000 in bonds on January 1, Year 1. The bonds were issue

Question

Kier Company issued $420,000 in bonds on January 1, Year 1. The bonds were issued at face value and carried a 5-year term to maturity. They had a 6.00% stated rate of interest that was payable in cash on December 31st. Based on this information alone, the amount of interest expense shown on the December 31, Year 1 income statement and the cash flow from operating activities shown on the December 31, Year 1 statement of cash flows would be:

Multiple Choice

Choice A

Choice B

Choice C

Choice D

Interest Expense Cash Outflow A. $ 25,200 zero B. zero $ 25,200 C. $ 25,200 $ 25,200 D. zero zero

Explanation / Answer

Based on this information

on december 31, Interest expenses in income statement will be (420000*6%) = 25200

and interest paid on same time (dec 31) so in statement of cash flow cash outflow is also = 25200

so answer is c) Choice C

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