Final answer:
When a company issues bonds at a premium, it will have a positive effect on cash flows. The premium amount received will increase cash from financing activities, while the amortization of the premium will decrease cash from operating activities.
Step-by-step explanation:
When a company issues bonds at a premium, it means that the bonds are sold at a price higher than their face value. This typically happens when the interest rate on the bonds is lower than the market interest rate. The premium amount is the difference between the selling price and the face value of the bonds.
From a statement of cash flows perspective, the issuance of bonds at a premium will have a positive effect on cash flows. This is because the company will receive more cash upfront when it sells the bonds at a premium. The premium amount will be recorded as an increase in cash from financing activities in the statement of cash flows.
However, it's important to note that the premium amount will also need to be amortized over the life of the bonds, which will result in a decrease in cash flows from operating activities. This is because the amortization of the premium is considered an expense and is subtracted from the net income in the operating activities section of the statement of cash flows.