Question

Most Solutions, Inc., issued 10% bonds, dated January 1, with a face amount of $640 million on January 1, 2018. The bonds mature in 2028 (10 years). For bonds of similar risk and maturity the market yield is 12%. Interest expense is recorded at the effective interest rate. Interest is paid semiannually on June 30 and December 31. Most recorded the sale as follows: January 1, 2018 Cash (price) 566,589,440 Discount on bonds (difference) 73,410,560 Bonds payable (face amount) 640,000,000

Answer 1

The requirement is missing, so I looked for similar questions and found that the requirement was:

What would be the amount(s) related to the bonds that Most would report in its statement of cash flows for the year ended December 31, 2018?

In the statement of cash flows, you report cash inflows or outflows.

Since the company received $566,589,440 when they issued the bonds, that amount should be included in the cash flows from financing activities section.

Depending on which method you use to report the operating cash flows, you should include the coupons paid, or not. If you use the direct method, then you should include the coupon payments as part of the operating cash flows. But if you use the indirect method (which is the most commonly used method), the coupons have already been included as an expense in the income statement, so you do not need to include them in the cash flow statement.