Kier Company issued $200,000 in bonds on January 1,Year 1.The bonds were issued at face value and carried a 4-year term to maturity.The bonds have a 6.5% 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

Since the bonds were issued at face value,the cash payment for interest equals the interest expense.
Payment of interest = Face value of $200,000 × .065 = $13,000
The payment of interest on December 31,Year 1,increases interest expense by $13,000 and is reported as a cash outflow for operating activities.

Kier Company Issued $200,000 in Bonds on January 1,Year 1