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cash flow effects of a bond premium on january 1,2015 datalink Inc. issued $100,000,10%, 10nyear bonds when the market rate of interest was 8%. interest

cash flow effects of a bond premium

on january 1,2015 datalink Inc. issued $100,000,10%, 10nyear bonds when the market rate of interest was 8%. interest is payable on june 30 and December 31. The following financail information is available

sales $300,000

cost of sales 180,000

Gross Profit 120,000

Interest expense

Depreciation expense (14,500)

Other Expeses (82000)

Dec 31,2015 Jan. 1, 2015

Accounts Receivable 55,000 48,000

Inventory 87,000 93,000

Accounts Payable 60,000 58,000

all purchase of inventory are on account. other expenses are paid in cash

Instructions:

1.Prepare the journal entry to record the issuance of the bonds on January 1, 2015

2. Compute (a) the amount of cash paid to bondholders for interest during 2015, (b) the amount of premium amortized during 2015, assuming Datalink uses the straight- line method for the amortizing bond premiums and discounts, and (c) the amount of interest expense for 2015.

3.Prepare the cash flows from operating activities section of Data links statement of cash flows using (a) the direct method and (b) the indirect method.

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