Kier Company issued $480,000 in bonds on January 1, Year 1. The bonds were issued at face value and carried a 5-year term to maturity. The bonds have a 6.00% stated rate of interest and interest is payable in cash on December 31 each year. Based on this information alone, what are the amounts of interest expense and cash flows from operating activities, respectively, that will be reported in the financial statements for the year ending December 31, Year 1?

Question

Quizplus · Accepted Answer

The bonds were issued at face value, so the carrying value of the bonds is $480,000. The stated rate of interest is 6.00%, so the annual interest expense is $480,000 x 6.00% = $28,800. Interest is payable in cash on December 31 each year, so the cash flow from operating activities for the year ending December 31, Year 1 is also $28,800.

Kier Company Issued $480,000 in Bonds on January 1, Year