Below is information for Fargo Corp.for 2013 and 2014: At the end of 2014,Fargo issued bonds at par value for $800,000 cash.The proceeds from these bonds were used to retire the $500,000 bond issue outstanding at the end of 2013 (before their maturity date).All interest expense was paid in cash during 2014.
The following statements describe how Fargo reported the cash flow effects of the items described above on its 2014 statement of cash flows.The indirect method is used to prepare the operating activities section.Which of the following has been reported incorrectly by Fargo?

Question

Below is information for Fargo Corp.for 2013 and 2014:  At the end of 2014,Fargo issued bonds at par value for $800,000 cash.The proceeds from these bonds were used to retire the $500,000 bond issue outstanding at the end of 2013 (before their maturity date).All interest expense was paid in cash during 2014.
The following statements describe how Fargo reported the cash flow effects of the items described above on its 2014 statement of cash flows.The indirect method is used to prepare the operating activities section.Which of the following has been reported incorrectly by Fargo?

Quizplus · Accepted Answer

Fargo Corp. used the proceeds from issuing new bonds to retire the bonds outstanding at the end of 2013. Since the new bonds were issued at par value, the cash inflow from this transaction is correctly reported as a financing activity (choice A). The loss on bond retirement of $15,000 should be added back to net income in the operating activities section, so choice B is also correct. However, payments related to the retirement of the $500,000 bond issue outstanding at the end of 2013 should be reported as a financing activity, not an investing activity, so choice C is incorrect. Finally, interest expense of $45,000 should be reported separately as an operating activity (choice D).

Below Is Information for Fargo Corp