On January 1,2011,Alpha Company issued $1,000,000 of 5%,20-year bonds to buy a new computerized accounting system.The market rate of interest was 6%.The bonds pay interest annually on December 31.Alpha uses the effective interest method of amortization.On its statement of cash flows for the year ended December 31,2011,Alpha will show ________ cash paid for ________ activities.

Question

Quizplus · Accepted Answer

The cash paid for operating activities is the amount of interest paid during the year, which is $50,000 ($1,000,000 x 5%). The cash paid for financing activities would be the issuance of the bonds, which occurred on January 1 and would not be reflected in the statement of cash flows for the year ended December 31.

On January 1,2011,Alpha Company Issued $1,000,000 of 5%,20-Year Bonds to Buy