Question

A company reported that its bonds with a par value of $50,000 and a carrying value of $66,500 are retired for $71,400 cash, resulting in a loss of $4,900. The amount to be reported under cash flows from financing activities is:

Answer 1

The amount reported under cash flows from financing activities for the retirement of bonds is the actual cash paid, which is $71,400. The loss incurred is recorded on the income statement and does not affect the cash flow statement.

Step-by-step explanation:

The question asks about the amount to be reported under cash flows from financing activities when a company retires its bonds. When a company retires bonds, it is essentially settling a liability. The carrying value of the bonds was $66,500, and the cash paid was $71,400, which means the actual cash flow is the amount paid to retire the bonds, not the loss. The loss is a separate figure that would appear on the income statement as a result of the retirement. The cash flow statement would only reflect the actual movement of cash, which in this case is the amount paid, $71,400. Therefore, under cash flows from financing activities, the company would report an outflow of $71,400.