Golden Co. prepares its statement of cash flows using the indirect method. Golden’s unamortized bond discount account decreased by $25,000 during the year. How should Golden report the change in unamortized bond discount in its statement of cash flows?
A. As a financing cash inflow.
B. As a financing cash outflow.
C. As an addition to net income in the operating activities section.
D. As a subtraction from net income in the operating activities section.
Answer:C
This answer is correct. The total amount of interest expense is subtracted to arrive at net income. However, only the coupon payment is paid during the current year. The $25,000 of the discount amortized during the period represents interest expensed but not yet paid. Therefore, this answer is correct because the decrease in the discount account should be added to net income in the operating activities section of the statement of cash flows.