Question

Agee technology, incorporated, issued 9% bonds, dated january 1, with a face amount of $1,300 million on july 1, 2024, at a price of $1,200 million. for bonds of similar risk and maturity, the market yield is 10%. interest is paid semi-annually on june 30 and december 31.

Required: what would be the amount(s) related to the bonds that agee would report in its statement of cash flows for the year ended december 31, 2024, if it uses the indirect method?

Answer 1

In its statement of cash flows for the year ended December 31, 2024, Agee Technology, Incorporated, would report an interest expense of $58.5 million and a cash paid for interest of $58.5 million.

Step-by-step explanation:

In its statement of cash flows for the year ended December 31, 2024, Agee Technology, Incorporated, would report two amounts related to the bonds:

1. The interest expense: This is the amount of interest paid on the bonds and would be reported as an operating activity in the statement of cash flows. The interest expense can be calculated by multiplying the face amount of the bonds ($1,300 million) by the interest rate (9%) and dividing by 2 (since interest is paid semi-annually). The amount would be $58.5 million.
2. The cash paid for interest: This is the actual cash paid to bondholders as interest and would also be reported as an operating activity. The cash paid for interest can be calculated by multiplying the face amount of the bonds ($1,300 million) by the interest rate (9%) and dividing by 2 (since interest is paid semi-annually). The amount would be $58.5 million.

Therefore, in its statement of cash flows for the year ended December 31, 2024, Agee Technology, Incorporated, would report an interest expense of $58.5 million and a cash paid for interest of $58.5 million.