Question

Question: 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.

Short answer

Answer

Particular	Amount $
Cash flow from operating activities:
Gain on redemption of bonds	($120,000)
Cash flow from financing activities:
Redemption of bonds payable	$1,880,000

Step-by-step solution

Definition of Bonds payable

Bonds payable represent the liability of the business entity that arose due to the issue of debt securities against cash. Such liability is generally reported under non-current liability.

Reporting redemption of bonds in the statement of cash flows

The redemption of bonds at a lower cost than the actual cost will be reported in two sections of the cash flow statement.

1. Cash flow from operating activities.
2. Cash flow from financing activities.