When the net cash provided by operating activities is determined, the amortization of bond premium:
A)should be added to the net income.
B)should be subtracted from the net income.
C)should not be used in the calculation.
D)be subtracted from the net cash amount after other calculations have been made.

Question

Quizplus · Accepted Answer

The amortization of bond premium is a non-cash expense, and it should be subtracted from net income when calculating net cash provided by operating activities using the indirect method. This adjustment is necessary because the premium amortization was added to interest expense to arrive at net income, but it does not represent an actual cash outflow.

When the Net Cash Provided by Operating Activities Is Determined