Final answer:
In the first year for a bond issued at a discount, the effective interest method of amortization involves a larger adjustment to net income on the Cash Flow Statement prepared under the indirect method than the straight-line method.
Step-by-step explanation:
When a bond is issued at a discount and the cash flow statement is prepared under the indirect method, the amortization of the discount becomes an adjustment to net income in deriving funds provided by operations. The two methods for amortizing bond discounts are the straight-line method and the effective interest method.
In the first year of a bond's life, the effective interest method typically results in a larger interest expense and thus a larger adjustment to net income compared to the straight-line method. This is because the effective interest method matches the interest expense with the carrying amount of the bond, which is lower in the earlier years when the bond is issued at a discount.
Understanding which method involves a larger adjustment to the cash flow statement is crucial for accurately reflecting the bond's financial impact. The effective interest method of amortization will involve a larger adjustment in the first year compared to the straight-line method.