Agee Technology Inc issued 9 bonds dated January 1 with a fa

Agee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $400 million on July 1, 2016, at a price of $380 million. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31.

What would be the amount(s) related to the bonds that Agee would report in its statement of cash flows for the year ended December 31, 2016, if it uses the indirect method and the direct method?

Please choose from these options.

Cash inflow from financing activities

Cash inflow from investing activties

Cash inflow from operating activities

Cash outflow from financing activities

Cash outflow from operating activities

Please provide with explain and calcualte. Thanks,

Agee Technology, Inc., issued 9% bonds, dated January 1, with a face amount of $400 million on July 1, 2016, at a price of $380 million. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31.

Solution

The Agree Technology Inc. issued 9% bonds having face value of $400 at $360 million. Interest on bonds are paid semiannualy at 30th June and 31st December. If the company uses direct method: The cash inflow from financing activities includes 9% bond issuance amounting 360 million. The interest paid on bonds are shown under the head cash outflow from operating activities. Cash flow statement under Direct Method Cash flow from operating activities Interest paid on bonds($400 million @ 9%) ($36million) Cash flow from financing activities: Issuance of 9% Bonds $360 million IF indirect method is used: cash inflow from issuance of bond is shown under cash flow from financing activites and interest on bond will not have any treatment because under indirect method the net income is taken and the non cash items and disallowed under the head cash flow from operating activities are added or deducted. Cash flow statement under Indirect Method Cash flow from operating activities - Cash flow from financing activities: Issuance of 9% Bonds $360 million