Question

Fox Co. prepares its statement of cash flows using the indirect method. Fox's unamortized bond premium account decreased by $25,000 during the year. How should Fox report the change in unamortized bond premium in its statement of cash flows? a. Ignored in both the operating and financing activitiesb. As an addition to net income in the operating activities sectionc. As a subtraction from net income in the operating activities sectiond. As a financing cash outflow

Answer 1

Answer:

The correct answer is letter "C": As a subtraction from net income in the operating activities section.

Explanation:

The unamortized bond premium is calculated dividing the face value amount with the bond sold amount minus the interest expense. For accounting purposes, the bond premium is a liability to the issuer. While using the indirect method of the cash flow the unamortized bond premium must be reported as the subtraction of the net income in the activities section.