- CFA Exams
- CFA Level I Exam
- Topic 3. Financial Statement Analysis
- Learning Module 20. Understanding Cash Flow Statements
- Subject 2. Preparing the Cash Flow Statement
CFA Practice Question
A company with outstanding bonds of $100,000 retires the debt early by buying back the bonds at $83,000. The impact on the cash flow statement, assuming the indirect method is used, would be ______
A. a cash outflow of $83,000 under investing cash flows and a deduction of $17,000 under cash flows from investing.
B. a cash outflow of $83,000 under cash flows from financing and a deduction of $17,000 under cash flows from operations.
C. a cash inflow of $83,000 under cash flows from financing and a cash inflow of $17,000 under cash flows from operations.
Explanation: Since a gain of $17,000 would be recognized on the income statement, it must be subtracted from cash flows from operations to zero out the effect. The entire cash outflow of $83,000 would be reported as a cash outflow from financing.
User Contributed Comments 2
| User | Comment |
|---|---|
| galai | shouldn't the $17k fall under investing cash flows? since it would be a sale proceed from a debt investment |
| nike | the gain/loss (17k) should be reported as CFO, and the proceeds should be reported as CIO. |