31.The actual coupon payment on a bond that a company issues is reported as which type of cash flow under U.S. GAAP, and which cash flow would be overstated by a premium bond?

        Coupon payment              Premium Bond

A)  Operating cash outflow         Cash flow from operations

B)  Financing cash outflow         Cash flow from operations

C)  Operating cash outflow         Cash flow from financing

D)  Financing cash outflow         Cash flow from financing

32.Assume a city issues a $5 million bond to build a new arena. The bond pays 8 percent semiannual interest and will mature in 10 years. Current interest rates are 9 percent. What is the interest expense in the second semiannual period?

A)   $80,000.

B)   $106,552.

C)   $210,831.

D)   $123,644.

33.On December 31, 2004, Newberg, Inc. issued 5,000 $1,000 face value seven percent bonds to yield six percent. The bonds pay interest semi-annually and are due December 31, 2011.

On its December 31, 2005, income statement, Newburg should report interest expense of:

A)   $350,000.

B)   $300,000.

C)   $316,448.

D)   $309,344.

34.On December 31, 2003 Okay Company issued 10,000 $1000 face value 9 percent bonds to yield 7 percent. The bonds pay interest semi-annually and are due December 31, 2013.

On its financial statements (prepared under U.S. GAAP) for the year ended December 31, 2004, Okay should report cash flow from operations of:

A)   -$755,735.

B)   -$700,000.

C)   -$830,000.

D)   -$900,000.

答案和详解如下：

31.The actual coupon payment on a bond that a company issues is reported as which type of cash flow under U.S. GAAP, and which cash flow would be overstated by a premium bond?

        Coupon payment              Premium Bond

A)  Operating cash outflow         Cash flow from operations

B)  Financing cash outflow         Cash flow from operations

C)  Operating cash outflow         Cash flow from financing

D)  Financing cash outflow         Cash flow from financing

The correct answer was C)

The table below provides additional information about the effect of debt issuance and amortization on the cash flow statement.

	Cash Flow from Financing	Cash Flow from Operations
Issuance of Debt	Increased by Cash Received (Present value of the bond at the market interest rate)	No effect
Periodic Interest Payments	No effect	Decreased by interest paid [(coupon rate) × (face or par value)]
Payment at Maturity	Decreased by face (par) value	No effect

Premium Bonds will overstate CFF and will understate CFO.

32.Assume a city issues a $5 million bond to build a new arena. The bond pays 8 percent semiannual interest and will mature in 10 years. Current interest rates are 9 percent. What is the interest expense in the second semiannual period?

A)   $80,000.

B)   $106,552.

C)   $210,831.

D)   $123,644.

The correct answer was C)

Step 1: Compute the present value of the bond: Since the current interest rate is above the coupon rate the bond will be issued at a discount.

FV = $5,000,000, N = 20, PMT = (0.04)(5 million) = $200,000, I/Y = 4.5, Compute PV = $-4,674,802

Step 2: Compute the interest expense at the end of the first period:

= (0.045)(4,674,802) = $210,336

Step 3: Compute the interest expense at the end of the second period

= (new balance sheet liability)(current interest rate)

= $4,674,802 + $10,336 = $4,685,138 new balance sheet liability

(0.045)(4,685,138) = $210,831

33.On December 31, 2004, Newberg, Inc. issued 5,000 $1,000 face value seven percent bonds to yield six percent. The bonds pay interest semi-annually and are due December 31, 2011.

On its December 31, 2005, income statement, Newburg should report interest expense of:

A)   $350,000.

B)   $300,000.

C)   $316,448.

D)   $309,344.

The correct answer was C)

Newberg, upon issuance of the bonds, recorded bonds payable of (N = (2*7) = 14, PMT = $175,000, I/Y = (6/2) = 3, FV = $5,000,000) $5,282,402. Interest paid June 30, 2005, was ($5,282,402 * (0.06 / 2) =) $158,472. The coupon payment was $175,000, reducing bonds payable to ($5,282,402 – ($175,000 - $158,472) =) $5,265,874. Interest paid December 31, 2005, was ($5,265,874 * (0.06 / 2) =) $157,976. Total interest paid in 2005 was ($158,472 + $157,976 =) $316,448.

34.On December 31, 2003 Okay Company issued 10,000 $1000 face value 9 percent bonds to yield 7 percent. The bonds pay interest semi-annually and are due December 31, 2013.

On its financial statements (prepared under U.S. GAAP) for the year ended December 31, 2004, Okay should report cash flow from operations of:

A)   -$755,735.

B)   -$700,000.

C)   -$830,000.

D)   -$900,000.

The correct answer was D)

At issuance, bonds payable are recorded at (P/Y = 2, PMT = $450,000, 1/Y = 7, FV = $10,000,000 =) $10,831,661. This amount would be recorded as a cash flow from financing (CFF). Cash flow from operations is charged for the entire amount of the coupon. ($10,000,000 * 0.09 =) $900,000.