Final answer:
The statement of cash flows will show a net increase in cash of $120,000 when $250,000 of bonds are issued and $130,000 of old bonds are retired, as it reflects the cash received from issuing new bonds minus the cash used to retire old bonds.
Step-by-step explanation:
If $250,000 of bonds are issued during the year and $130,000 of old bonds are retired during the same year, the statement of cash flows will reflect a net increase in cash of $120,000. This calculation is done by taking the total amount of new bonds issued ($250,000) and subtracting the amount of old bonds that are retired ($130,000). Therefore, option A is correct - net increase in cash of $120,000.
When a company issues bonds, it receives cash, which is reflected as an inflow on the statement of cash flows. Conversely, when a company retires bonds, it pays cash, which is an outflow.
The net effect on cash is therefore the inflow from issued bonds minus the outflow from retired bonds. It is important to note that the net increase in cash from these transactions only reflects the cash movements and not any potential gains or losses on the retirement of the bonds which would be recorded separately in the income statement.