The amortization of a premium on bonds payable: A) has no effect on the cash payments for interest reported in the operating activities section of the statement of cash flows B) increases the cash payments for interest reported in the operating activities section of the statement of cash flows C) decreases the cash payments for interest reported in the operating activities section of the statement of cash flows D) is reported in the financing activities section of the statement of cash flows

Question

Kailey Hinton

Business

23 June, 10:05

The amortization of a premium on bonds payable: A) has no effect on the cash payments for interest reported in the operating activities section of the statement of cash flows B) increases the cash payments for interest reported in the operating activities section of the statement of cash flows C) decreases the cash payments for interest reported in the operating activities section of the statement of cash flows D) is reported in the financing activities section of the statement of cash flows

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Joseph Franco · Answer 1

A) has no effect on the cash payments for interest reported in the operating activities section of the statement of cash flows

Explanation:

The amortization is an accounting method to match the difference in the nominal interest rate of bonds with the real interest rate the bond is yielding.

Th cash flow statment will just recognize the cash proceeds, which are calculate base on the face value, regardless of the premium or discount in the bond.