Question

Agee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $400 million on July 1, 2016, at a price of $380 million. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31.
What would be the amount(s) related to the bonds that Agee would report in its statement of cash flows for the year ended December 31, 2016, if it uses the indirect method? (List any cash outflows with a minus sign. Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

Answer 1

Answer:

Cash flow from financing activities-$380 million

Cash flow from operating activities($18*2)   ($36 million)

Explanation:

The amount received from the issue of bonds would appear in the cash flows under the financing activities as cash inflow since the bondholders mad cash available to Agee Technology Inc, in form of loan repayable in future.

The coupon interest for the year (both for June 30 and December 31) would appear as cash outflow under the operating activities section of the statement of cash flow.

Coupon payment for June=$400 million*9%*6/12=$18

Coupon payment for December=$400 million*9%*6/12=$18

The coupon payment for December is included since the payment is made on 31st December,there should not be any time lag between payment and recording the necessary entries.