On January 1,2011,Ace Electronics borrowed $40,000 on a five-year,7% note.The loan will be repaid in 5 equal installments of $9,756 each year,beginning on December 31,2011.On its statement of cash flows for the year ended December 31,2011,Ace will show cash paid for interest as ________ activity.
A)$(9,756),an operating
B)$(2,800),a financing
C)$(9,756),a financing
D)$(2,800),an operating

Question

Quizplus · Accepted Answer

Interest payments on debt are considered operating activities because they relate to the core business operations. The interest for the first year is calculated as 7% of $40,000, which equals $2,800.

On January 1,2011,Ace Electronics Borrowed $40,000 on a Five-Year,7% Note