Question

During the current year, Maine Salvage Company took out new loans of $16 million. In addition, the company repaid $2.6 million of prior loans and paid $1.95 million of interest expense. Explain how these cash flows will appear in the company's statement of cash flows, indicating the classification and the dollar amount of each cash flow. (Enter your answers in millions rounded to 1 decimal place.)

Answer 1

Proceeds from new loan will appear in financing activities of cash flow statement as it is a part of finance. Same repayment of prior loans of $2.6 million is a part of finance section in cash flow statement and will be deducted as cash has decreased.

Interest expense will be added back to net income shown under operating activities as it is part of financing activity and will also be shown under financing activity of cash flow.

Cash flow from operating activities:
Net income
Interest expense	$1.95
Cash flow from financing activities:
Proceeds from loan	$16
Repayment of prior loan	-2.6
Interest expense	-1.95