Question

On January 1, Jim Shorts Corporation issued $300 million face value bonds for $580 million. During the same year, $1,500,000 of the bond premium was amortized. On a statement of cash flows prepared by the indirect method, Jim Shorts Corporation should report:

Answer 1

Based on the information provided, here is how Jim Shorts Corporation should report this bond issuance and premium amortization on their statement of cash flows prepared by the indirect method:

Operating Activities section:

Report the amortization of the bond premium as an adjustment to reconcile net income to net cash provided by operating activities. Since amortizing the premium reduces expenses, it will increase net income. So the adjustment will be a +$1,500,000 to net income.

Financing Activities section:

Report the net cash provided by the bond issuance, which is $580 million face value received minus $300 million face value issued, or $280 million. So the cash from financing activities will show "+$280,000,000 Proceeds from issuance of bonds"

Hope this helps! Let me know if you have any other questions.