how is the cash payment of interest computed in the cash flo

how is the cash payment of interest computed in the cash flows statement?

Solution

Answer: If there is only 1 year balance sheet given in question.

Calculation of interest paid =

Interest expense appear in the Income Statement.

+ Prepaid interest expense

- outstanding interest expense

If there are 2 year balance sheet given in question

Interest expense paid =

Interest expense appear in Income Statement

+ Increase in prepaid interest expense

- decrease in prepaid interest expense

+ Decrease in outstanding interest expense

- increase in outstanding interest expense