Question

If $380,000 of bonds are issued during the year and $130,000 of bonds are retired during the year, the statement of cash flows (indirect method) will show a(n):
Select one:
a. net decrease in cash of $250,000 in the operating activities section.
b. net increase in cash of $250,000 in the operating activities section.
c. net gain on retirement of bonds of $250,000 in the financing activities section.
d. increase in cash of $380,000 in the financing activities section and a decrease in cash of $130,000 in the financing activities section.

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Abdul-Rahim Taysir

Answer 1

Answer: d.Increase in cash of $380,000 in the financing activities section and a decrease in cash of $130,000 in the financing activities section.

Calculation:

Cash flow from Financing activities	$
Issuance of bonds	380,000
Retirement of bonds	($130,000)
Net Cash used for financing activities	250,000

When bonds are issued, cash will be collected by the company results in increase in cash. In retirement of bonds, cash are paid to the bondholders results in decrease in cash.

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