Question

Norton Corporation received cash from issuing 10-year $200,000 bonds at face value. Interest of $10,000 is paid annually to the bondholders on December 31. How do the issuance of the bonds and the payment of the interest affect Norton's financing activities section of the statement of cash flows for

Answer 1

Answer:

Issuance of bonds is a cash inflow

Payment of interest is a cash outflow

Explanation:

The issue of the bond at $200,000 face value would be a cash inflow under the financing activities of the cash flow when issued since more cash was received from the bondholders.

However,the payment of bond interest of $10,000 yearly is a cash outflow under the financing activities section of the statement of cash flows,since Norton Corporation would be parting with the amount on yearly basis till the bonds are retired.