30. Assume U.S. GAAP (generally accepted accounting principles) applies unless otherwise noted.

Which of the following best describes how issuing a zero-coupon bond affects a company's financial statements? The company's:

Select exactly 1 answers from the following:

A. cash flow from operations decreases for the life of the bond.

B. net income is overstated every year until the bond's maturity.

C. cash flow from investing decreases during the year of the bond's maturity.

D. cash flow from financing increases during the year of the bond's issuance.

答案和详解如下！

Feedback: Correct answer: D

The Analysis and Use of Financial Statements, 3rd edition, Gerald I. White, Ashwinpaul C. Sondhi, and Dov Fried (Wiley, 2003), pp. 329?32

2006 Modular Level I, Vol. II, pp. 907-911

Study Session 10-43-a

compute the effects of debt issuance and amortization of bond discounts and premiums on the financial statements and ratios, discuss the effect on reported cash flows of issuing zero-coupon debt, and determine the appropriate classification for debt with equity features and calculate the effect of issuance of such instruments on the debt to total capital ratio

Issuing a zero-coupon bond systematically overstates cash flow from operations. When the bond is issued, the proceeds are included in cash flow from financing.

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