On January 1, Year 1, Jones Company issued bonds with a $200,000 face value, a stated rate of interest of 8.5%, and a 5-year term to maturity. The bonds were issued at 98. Interest is payable in cash on December 31st of each year. The company amortizes bond discounts and premiums using the straight-line method. What is the amount of cash outflow from operating activities shown on Jones' statement of cash flows for the year ending December 31, Year 2?

Question

Quizplus · Accepted Answer

The correct answer is A.The amount of cash outflow from operating activities shown on Jones' statement of cash flows for the year ending December 31, Year 2 is $17,000. This is calculated as follows:Interest expense = $200,000 x 8.5% = $17,000Amortization of bond discount = ($200,000 - $196,000) / 5 = $800Total cash outflow = $17,000 + $800 = $17,800

On January 1, Year 1, Jones Company Issued Bonds with a $200,000