A company settles a long-term note payable plus interest by paying $68,000 cash toward the principal amount and $5,440 cash for the interest. Under the direct method of reporting interest, the $5,440 would be listed as a(n):

Question

Quizplus · Accepted Answer

The direct method of reporting interest involves listing the actual cash payments made for interest under the operating activities section of the cash flow statement. Since the company paid cash for the interest, it would be reported as an operating activity, along with other cash inflows and outflows related to operations. Therefore, the correct choice is A) operating activity.

A Company Settles a Long-Term Note Payable Plus Interest by Paying