Suppose a company pays interest of $10,000 for the year on borrowed amounts due in two years.Under U.S.GAAP,what is the most the company can report this year as cash outflows from financing activities related to this item?
A)$10,000.
B)$2,000.
C)$5,000.
D)$0.

Question

Quizplus · Accepted Answer

Under U.S. GAAP, interest expense is recognized on an accrual basis, meaning that it is recorded in the period in which it is incurred, regardless of when it is paid. Therefore, the company cannot report any cash outflows from financing activities related to this item in the current year.

Suppose a Company Pays Interest of $10,000 for the Year