On the balance sheet it states that bonds payable is $32,000 and Discount on bonds payable is $2000. When it says that the company retired the bond at net book value, does that mean they cashed out $30,000 and that's the amount that goes into the Cash Flow Statement or does $32,000 go in the Cash Flow Statement and $2000 under Loss on retirement of bond?
When a company retires a bond at its net book value, it means that they redeem the bond by paying the bondholders an amount equal to the carrying value of the bond on the balance sheet. In this case, the carrying value of the bond is $32,000, which represents the Bonds Payable.
To calculate the amount that goes into the Cash Flow Statement, you need to consider the following:
1. Determine the cash payment: The company will pay the bondholders the carrying value of the bond, which is $32,000. Therefore, $32,000 will be the cash outflow recorded on the Cash Flow Statement under the financing activities section.
2. Determine the gain or loss on retirement: The Discount on Bonds Payable account of $2,000 represents the unamortized discount on the bond. When the bond is retired, this discount needs to be eliminated. To do this, you subtract the Discount on Bonds Payable ($2,000) from the carrying value ($32,000) to calculate the bond's net book value.
Net Book Value = Carrying Value - Discount on Bonds Payable
= $32,000 - $2,000
= $30,000
Therefore, the company will record a loss on retirement of bond for $2,000, which represents the write-off of the unamortized discount. The loss on retirement of bond will be recorded as an expense on the income statement, but not on the Cash Flow Statement.
In summary, the company will have a cash outflow of $32,000 (recorded in the Cash Flow Statement) and incur a loss on retirement of bond of $2,000 (recorded in the income statement).
When a company retires a bond at net book value, it means that they are paying off the bond at its carrying value, which is the net book value. In this case, the carrying value of the bond is $30,000 ($32,000 - $2,000).
When recording the retirement of the bond in the cash flow statement, the amount that goes in is the actual cash paid to retire the bond. In this case, since the bond is retired at net book value of $30,000, that would be the amount that goes into the cash flow statement as a cash outflow.
The $2,000 discount on bonds payable would be part of the loss on retirement of bond. This loss represents the difference between the carrying value of the bond ($30,000) and the amount of cash paid to retire the bond.
To summarize:
- The cash outflow of $30,000 goes into the Cash Flow Statement.
- The $2,000 loss on retirement of bond goes into the Income Statement or Statement of Comprehensive Income, representing the difference between the carrying value and the amount paid to retire the bond.