Question

During the current year, Nary Corp.'s income statement shows that the company accrued interest expense of $5,000; for the same period the interest payable balance increased by $300 and bond discounts decreased by $400. Cash paid for interest is?

Answer 1

The cash paid for interest by Nary Corp. is calculated by adjusting the interest expense of $5,000 for the increase in interest payable ($300) and the decrease in bond discounts ($400), resulting in a cash payment of $5,100.

Step-by-step explanation:

To determine the cash paid for interest, we need to adjust the interest expense for the changes in related accounts. The interest expense reported is $5,000. However, interest payable increased by $300, meaning that not all of the interest expense resulted in a cash outflow. Additionally, bond discounts decreased by $400, which is an adjustment to the carrying value of the bond that affects interest expense but not cash flow. Therefore, we calculate the cash paid for interest as follows:

Interest Expense: $5,000


Increase in Interest Payable: ($300)


Decrease in Bond Discount: $400

Cash Paid for Interest = Interest Expense - Increase in Interest Payable + Decrease in Bond Discount


Cash Paid for Interest = $5,000 - $300 + $400


Cash Paid for Interest = $5,100

The cash paid for interest by Nary Corp. is $5,100 during the current year.