David Corporation issued $100,000, 5-year bonds at 97 on January 1, 2008. On December 31, 2012 the bonds matured. The payment of the bonds at maturity would be reported on the statement of cash flows as a cash outflow of:
A) $97,000 in the financing activities section.
B) $97,000 in the investing activities section.
C) $100,000 in the financing activities section
D) $100,000 in the investing activities section.

Question

Quizplus · Accepted Answer

The payment of the bonds at maturity represents a repayment of principal to investors and therefore should be reported as a cash outflow in the financing activities section of the statement of cash flows. The amount of the repayment is the face value of the bonds, which is $100,000. The fact that the bonds were originally issued at a discount (97) is irrelevant for this purpose.

David Corporation Issued $100,000, 5-Year Bonds at 97 on January