Marine Corp. uses the direct method to prepare its statement of cash flows. Marine's trial balance at December 31, 1996 and 1995 are as follows:
Dec. 31, 1996 Dec. 31, 1995
Debits:
Cash $35,000 $32,000
Accounts receivable 33,000 30,000
Inventory 31,000 47,000
Property, plant & equipment1 00,000 95,000
Unamortized bond discount 4,500 5,000
Cost of goods sold250,000 380,000
Selling expenses 141,500172,000
General and administrative expenses 137,000 151,300
Interest expense 4,300 2,600
Income tax expense 20,400 61,200
Total debits $756,700 $976,100
Allowance for doubtful accounts $1,300 $1,100
Accumulated depreciation 16,500 15,000
Trade accounts payable 25,000 17,500
Income taxes payable 21,000 27,100
Deferred income taxes 5,300 4,600
8% callable bonds payable 45,000 20,000
Common stock 50,000 40,000
Additional paid-in capital 9,100 7,500
Retained earnings 44,700 64,600
Sales 538,800 778,700
Total credits $756,700 $976,100
Marine purchased $5,000 in equipment during 1996. Marine allocated one-third of its depreciation expense to selling expenses and the remainder to general and administrative expenses.
What amount should Marine report in its statement of cash flows for the year ended December 31, 1996 for cash paid for interest?
- $1,700
- $3,800
- $3,600
- $4,300
- $4,800
Answer(s): B
Explanation:
Interest expense is $4,300 and was all paid since there is no interest payable account. However, since there is an account for unamortized bond discount, the reduction of $500 between the two years represents discount amortization, a noncash item. Therefore $4,300 less $500 (or $3,800) was paid in cash for interest.
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