Nomad Company issued $1,000,000 face value 2-year zero coupon bonds on December 31, 1999 to yield eight percent interest. Bond proceeds were $857,339. In 2000 Nomad recorded interest expense of $68,587. In 2001 Nomad recorded interest expense of $74,074 and paid out $1,000,000 to redeem the bonds. Based on these transactions only, Nomad’s Statement of Cash Flow for 1999, 2000, and 2001 would show cash flow from operations (CFO) of: A) -$68,587 in 2000 and -$74,074 in 2001. B) zero in all years. C) -$142,661 in 2001. D) -$1,000,000 in 2001. Answer was B. Isn’t the interest paid or received should be in CFO…Appreciate ur respone…
It is a zero coupon bond, so no outflow .
According to the best of my knwledge, I do not even think that it is expensed on the NI for that year. AS a result of this CFO is highly overstated and CFF understated.