Reporting Issuance and Retirement of Long-Term Debt On the basis of the details of the following bonds payable and related discount accounts, indicate the items to be reported in the Financing Activities section of the statement of cash flows, assuming no gain or loss on retiring the bonds: Account Bonds Payable Account NO. Date Item Debit Credit Balance Debit Balance Credit Jan. 1 Balance 540,000 Jan. 2 Retire bonds 108,000 432,000 Jan. 3 Issue bonds 324,000 756,000 Account Discount on Bonds Payable Account NO. Date Item Debit Credit Balance Debit Balance Credit Jan. 1 Balance 42,300 Jan. 2 Retire bonds 8,640 15,660 June 30 Issue bonds 27,700 37,360 Dec. 31 Amortize discount 1,870 35,490 Item Section of Statement of Cash Flows Added or Deducted Amount Retire bonds Financing activities section Deducted $ Issue bonds Financing activitie section Added $ Amortization of discount Operating activities section, if indirect method used Added $
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Reporting Issuance and Retirement of Long-Term Debt
On the basis of the details of the following bonds payable and related discount accounts, indicate the items to be reported in the Financing Activities section of the statement of
Account Bonds Payable Account NO.
| Date | Item | Debit | Credit |
Balance Debit |
Balance Credit |
| Jan. 1 | Balance | 540,000 | |||
| Jan. 2 | Retire bonds | 108,000 | 432,000 | ||
| Jan. 3 | Issue bonds | 324,000 | 756,000 | ||
Account Discount on Bonds Payable Account NO.
|
Date |
Item | Debit | Credit |
Balance Debit |
Balance Credit |
| Jan. 1 | Balance | 42,300 | |||
| Jan. 2 | Retire bonds | 8,640 | 15,660 | ||
| June 30 | Issue bonds | 27,700 | 37,360 | ||
| Dec. 31 | Amortize discount | 1,870 | 35,490 |
| Item | Section of Statement of Cash Flows | Added or Deducted | Amount |
| Retire bonds | Financing activities section | Deducted | $ |
| Issue bonds | Financing activitie section | Added | $ |
| Amortization of discount | Operating activities section, if indirect method used | Added | $ |
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
