Respuesta :
When computing net cash flow from operating activities using the indirect method, an addition to net income is most likely to occur when there will be a loss on the retirement of debt.
The net income from a company's income statement is first taken in order to calculate cash flow from operating activities using the indirect method. Revenue is only recorded when it is earned, not when it is received, as a result of the accrual basis used to prepare a company's income statement. The price of a bond that is retired prior to maturity might not be exactly equal to the carrying amount.
A loss on retirement is recorded by the issuer if the price paid to retire a bond is higher than its carrying value. Although debt doesn't dilute ownership, paying interest on debt lowers net income and cash flow. Because of the lower taxable income, this decrease in net income also has a positive tax impact.
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