Bonds with a face value of $150,000 are issued at 98. The statement of cash flows would report a:
A)cash inflow of $147,000 in the financing activities section.
B)cash inflow of $3,000 in the financing activities section.
C)cash inflow of $147,000 in the investing activities section.
D)cash inflow of $3,000 in the investing activities section.

Question

Quizplus · Accepted Answer

When bonds are issued, the company receives cash in exchange for the bond. The face value of the bond is the amount that the company promised to pay back at maturity. In this case, the face value of the bond is $150,000. However, the bonds were sold at a discount (98), which means the company only received 98% of the face value in cash ($150,000 x 98% = $147,000). Therefore, the statement of cash flows would report a cash inflow of $147,000 in the financing activities section.

Bonds with a Face Value of $150,000 Are Issued at 98