Kier Company issued $600,000 in bonds on January 1, Year 1. The bonds were issued at face value and carried a 5-year term to maturity. The bonds have a 6.00% stated rate of interest and interest is payable in cash on December 31 each year. Based on this information alone, what are the amounts of interest expense and cash flows from operating activities, respectively, that will be reported in the financial statements for the year ending December 31, Year 1

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Business

Moore

20 October, 13:34

Kier Company issued $600,000 in bonds on January 1, Year 1. The bonds were issued at face value and carried a 5-year term to maturity. The bonds have a 6.00% stated rate of interest and interest is payable in cash on December 31 each year. Based on this information alone, what are the amounts of interest expense and cash flows from operating activities, respectively, that will be reported in the financial statements for the year ending December 31, Year 1

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Rhys Rodriguez · Answer 1

interest expense = $36,000

cash flows from operating activities = - $36,000

Explanation:

issued $600,000 in 6% bonds, with a 5 year maturity with an annual coupon paid December 31.

since bonds were issued at face value, interest expense = face value x bonds payable = 6% x $600,000 = $36,000

cash flows from operating activities related to this operation = - $36,000

interest expense is part of operating activities, so they decrease the cash flow from operating activities.