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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

Expert verified

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

01

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.

02

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.

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Most popular questions from this chapter

Of what use is the statement of cash flows?

Moxley Corporation had January 1 and December 31 balances as follows.

1/1/17 12/31/17

Inventory \(95,000 \)113,000

Accounts payable 61,000 69,000

For 2017, cost of goods sold was $500,000. Compute Moxleyโ€™s 2017 cash payments to suppliers.

The accounts below appear in the ledger of Anita Baker Company.

Retained Earnings Dr. Cr. Bal.

Jan. 1, 2017 Credit Balance \( 42,000

Aug. 15 Dividends (cash) \)15,000 27,000

Dec. 31 Net Income for 2017 \(40,000 67,000

Equipment Dr. Cr. Bal.

Jan. 1, 2017 Debit Balance \)140,000

Aug. 3 Purchase of Equipment \(62,000 202,000

Sept. 10 Cost of Equipment Constructed 48,000 250,000

Nov. 15 Equipment Sold \)56,000 194,000

Accumulated Depreciationโ€” Equipment Dr. Cr. Bal.

Jan. 1, 2017 Credit Balance \( 84,000

Apr. 8 Major Repairs \)21,000 63,000

Nov. 15 Accum. Depreciation on Equipment Sold 25,200 37,800

Dec. 31 Depreciation for 2017 \(16,800 54,600

Instructions

From the postings in the accounts above, indicate how the information is reported on a statement of cash flows by preparing a partial statement of cash flows using the indirect method. The loss on sale of equipment (November 15) was \)5,800.

The following data are taken from the records of Alee Company

December 31, December 31,

2017 2016

Cash \( 15,000 \) 8,000

Current assets other than cash 85,000 60,000

Long-term debt investments 10,000 53,000

Plant assets 335,000 215,000

\(445,000 \)336,000

December 31, December 31,

2017 2016

Accumulated depreciation \( 20,000 \) 40,000

Current liabilities 40,000 22,000

Bonds payable 75,000 โ€“0โ€“

Common stock 254,000 254,000

Retained earnings 56,000 20,000

\(445,000 \)336,000

Additional information:

1. Held-to-maturity securities carried at a cost of \(43,000 on December 31, 2016, were sold in 2017 for \)34,000. The loss (not unusual) was incorrectly charged directly to Retained Earnings.

2. Plant assets that cost \(50,000 and were 80% depreciated were sold during 2017 for \)8,000. The loss was incorrectly charged directly to Retained Earnings.

3. Net income as reported on the income statement for the year was \(57,000.

4. Dividends paid amounted to \)10,000.

5. Depreciation charged for the year was $20,000.

Instructions

Prepare a statement of cash flows for the year 2017 using the indirect method

Question: Explain how the amount of cash payments to suppliers is computed under the direct method.

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