Book States: For premium bonds CFF is overstated (this makes sense since face is $102,531)
But it also says
CFO is understated. How is CFO understated if the company is paying out $10,000 vs a $9,228 interest expense? Are they assuming it is understated relative to the interest that should be paid if the coupon was multiplied by the face value + premium?作者: soddy1979 时间: 2011-7-13 16:39
Let's say bond is issued at par $100,000, then your interest expense should be $9,000 instead of $9,228. So CFO is understated as a result of issuing a premium bond( you're paying more interst expense) Or simply as CFF is overstated, either CFO or CFI needs to be understated in order to balance. As we know paying interest expense or paying dividend is operating activities, we know CFO is understated.
Hope it makes sense and correct me please if I am wrong.作者: koba 时间: 2011-7-13 16:39
dhyun3 Wrote:
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> Or simply as CFF is overstated, either
> CFO or CFI needs to be understated in order to
> balance.
+1
This way it is easier to be spot on in an exam question, without wasting much valuable time on that question.作者: burnsy562000 时间: 2011-7-13 16:39
another small correction on something that dhyun3 had made above -
dividend payments are CFF - NOT CFO.
I think you are getting confused between Dividends received and Dividends Paid. and also the subtle difference between treatment of dividend received between IFRS and GAAP.
CP作者: cyber21 时间: 2011-7-13 16:39
hi all, I think I was confused between dividends paid and received. Thanks everyone for correcting my mistakes.作者: spartanag07 时间: 2011-7-13 16:39
revenant Wrote:
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> You are right that interest expense is lower than
> coupon payment but this is why CFO is understated.
> You paid out more, resulting in lower CF from
> operation.
revenant is right on the point.作者: JoeyDVivre 时间: 2011-7-13 16:39
