Question

Agee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $1,080 million on July 1, 2021, at a price of $1,060 million. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semi-annually on June 30 and December 31. Required: 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, 2021, if it uses the indirect method? (List any cash outflows with a minus sign. Enter your answer in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

	($ in millions)
Cash inflow from financing activities	$1,060.0
Operating Activities: Positive adjustment to net income

Answer 1

Step 1

Statement of cash flow under indirect method requires adjustment for Non cash items.

In case of amortization of bonds discount on its issue, it is added to the interest expense to bring bonds face value to its issued value.

Amortization expense for 2021:

Interest on bonds = 9% annually i.e 4.5% semi annually

Market rate = 10% annually i.e. 5% semi annually

GeneralJournal
Year	Particulars	L.F	Debit ($)	Credit ($)
2016
Dec-31	Bond Interest Expense (1,060*10%*.5)		53
	Discounton Bonds Payable			4.4
	Cash(1,080*9%*.5)			48.6
	(For paid semi-annual interest on 9% bondsfor 6 months and amortization of discount for half year)

Agee Technology will report cash inflow of $1,060 as inflow incash flow from financing activities

Also interest payemnt of $48.6 will be shown as deduction fromcash flow from operating activities as interest payment isoperating item.