Cash Flows

Question 1

How is amortization of bond discount reported in a statement of cash flows using the indirect method?

Answer 1

this difference (the amount of amortized discount) is added to net income to arrive at income from operating activities.

Question 2

How is the amortization of a bond premium on long-term debt presented in the statement of cash flows?

Answer 2

Deduction from net income is necessary to determine cash provided by operating activities (when using the indirect approach of presenting cash flows from operating activities).

Question 3

Cash dividends payments

Answer 3

Financing activity
Find the change in R/E during the period, subtract from N/I. If there are any dividends payable subtract to find the cash dividend payments.

Question 4

A loss on the sale of machinery- under the indirect approach

Answer 4

Is an addition to net income. The loss decreases net income, but does not reduce cash. Therefore, the loss must be added back to net income to determine cash flows from operating activities.

Question 5

Finance costs (interest expense) - IFRS

Answer 5

Can be reported in either in the operating or financing section of the statement of cash flows. However, once it is disclosed in a particular section, it must be reported on a consistent basis.

Question 6

ASC Topic 230, cash inflows and outflows from trading securities (realized gains)

Answer 6

may be included in either operating or investing activities, based on the nature and purpose of the securities. Unrealized gains and losses on trading securities should be included in current income.

Since the realized gain on sale is already included as a component of net income, only the fair value (carrying amount) of the securities at the beginning of the period must be added to net income. The total cash inflow from the sale (carrying amount plus realized gain) will then be included in operating activities.