Tanner-UNF Corporation acquired as a long-term investment $700,000 of 8% bonds,

Question

Tanner-UNF Corporation acquired as a long-term investment $700,000 of 8% bonds, dated Jan 1. The market interest rate (yield) was 10% for bonds of similar risk and maturity. Tanner-UNF paid $ 455,350 for the bonds. The company will receive interest semiannually on June 30 and December 31. Company management has classified the bonds as available-for-sale investments. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $350.000. What is the amount related to the bonds that Tanner-UNF will report in its statement of cash flows for the year ended Dec 31, 2015 ?

Explanation / Answer

In the statement of cash flows, Tanner UNF will report only the interest income received for the half years during the year. The amount will be reported under 'Cash flows from operating activities'. Under direct method it will be a line item and under the indirect method it will be automatically considered when net income is entered as the first line item. The amount to be reported = 700000*8% = $56,000

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