Question

Jurgenson Company issued bonds with a $100,000 face value on January 1, 2019. The five-year term bonds were issued at 98 and had a 7% stated rate of interest that is payable in cash on December 31st of each year. Jurgenson amortizes the bond discount using the straight-line method. Based on this information:
The amount of cash outflow from operating activities shown on Jurgenson’s December 31, 2019, statement of cash flows would be:

a.$7,000.
b.$7,200.
c.$7,400.
d.$7,800.

Answer 1

Answer:

Option A. $7000

Explanation:

The reason is that in the statement of cash flow, the interest expense for the year paid is an cash ouflow and must be deducted from the operating activities as it the companies borrow to finance its operations to perform better. Hence it is related to operating activities, so it must be deducted from the operating activities.

The interest paid at the end of the year is $7000 ($100,000 * 7%).