16 Each year, White Mountain Enterprises (WME) prepares a reconciliation schedul

Question

16 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 2016 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: A. Show a $2,000 positive adjustment to net income under the indirect method for the decrease B. Show a $2,000 negative adjustment to net income under the indirect method for the decrease C. Show a $2,000 positive adjustment to net income under the indirect method for the decrease D. Show o $2,000 negative adjustment to net income under the indirect method for the decrease in bond premium. in bond premium. in bond discount. in bond discount.

Explanation / Answer

When the interest expense is more than the amount of cash paid and the effective interest is more than the stated interest rate then the bond is sold at discount.

Ans: C show a $2000 positive adjustment to net income under the indirect method for decrease in bond discount.

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