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1. a. no effect b. outflow operating
2. a. decrease b. outflow operating
3. a. no effect b. outflow financing
4. a. decrease b. outflow operating
(CMA adapted)
Option2 &4. a. decrease b. outflow operating
Thank you gentlemen for your answers. The correct answer is B and D. Decrease in equity and outflow from operating activities.
Interest expense when incurred will decrease net income. Net income is closed to retained earnings (which is an equity account). Should there be no interest expense, equity would be higher.
While loan proceeds and principal repayments are financing activities, interest paid should be reflected as outflow from operating activities.
2nd &4th are Correct. Because Interest to Bond Holders is an expense which will reduce and net profit and hence the equity, and its payment will reduce the cash.
Answer number2 &4 decrease equity and decrease cash out flow from operating
Entry
Debit / bonds interest expense
Credit/ cash
Why decrease cash flow from operating not finance because it's interest used in operation
But bond installments or origenal value when paid considered cash out flow from financing activities
3 a. no effect b. outflow financing
You are right because net income will decrease for charging interest of bonds and on other hand this interest paid is outflow operating activity . Then answer2 is right answer according to GAAP .
Agree with2 and4 is correct
Third answer is the correct.
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2. a..>>>> decrease b. outflow operating
&
4..>>>>> a. decrease b. outflow operating
answer number2
answer number4
theses answers are correct
3. a. no effect b. outflow financing Activities ...
