On January 1,2012,Sol Company issued bonds with a face value of $100,000 at 105.The bonds will mature in 5 years.Interest at 10% was payable in cash on December 31 of each year.The premium will be amortized using the straight line method.Based on this information,the amount of interest expense shown on the 2012 income statement and the cash flow from operating activities shown on the 2012 statement of cash flows would be:

Question

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The interest expense for 2012 would be calculated as: 
Face value of bonds x stated interest rate = $100,000 x 10% = $10,000 
Amortization of premium = ($105 - $100) x $100,000 / number of years = $1,000 
Total interest expense = $10,000 + $1,000 = $11,000

The cash flow from operating activities in the statement of cash flows would show the cash paid for interest, which is $10,000. The amortization of premium is a non-cash expense and does not affect cash flow.

On January 1,2012,Sol Company Issued Bonds with a Face Value