Kline Company issued $400,000 in bonds on January 1, 2013. The bonds were issued at face value and carried a 4-year term to maturity. They had a 6 ½% stated rate of interest that was payable in cash on December 31st. Based on this information alone, the amount of interest expense shown on the 12/31/2013 income statement and the cash flow from operating activities shown on the 12/31/2013 statement of cash flows would be:

Question

Quizplus · Accepted Answer

$400,000 x .065 = $26,000; Payment of interest on 12/31/13 increases interest expense by $26,000 and is reported as a cash outflow for operating activities.

Kline Company Issued $400,000 in Bonds on January 1, 2013