Question

The amortization of bond premium on long-term debt should be presented in a statement of cash flows (using indirect approach for operating activities) as a(n):________.
A. Deduction from net income.
B. Addition to net income.
C. Financing activity.
D. Investing activity.

Answer 1

Answer:

Option A: deduction from net income

Explanation:

Bonds are usually known as loans and most times also as IOUs.

Most times, bonds when they are been sold at a discount or premium, the interest expense for that duration/ period will not be the same as it differ from the change in cash resulting from payment of interest expense.

And also, If premium is amortized, the interest expense that is been included in income determination is not that big like the interest paid or becoming payable in the period. Due to the cash outflow is larger than the deduction in arriving at net income, a deduction from net income is necessary to know cash provided by operating activities usually when using the indirect approach of presenting cash flows from operating activities.