Financial Accounting and Reporting CPA Practice Exam 2025 – Complete Prep Resource

When calculating cash proceeds from bond issuance, it is important to account for bond issuance costs correctly. These costs—such as underwriting fees, legal fees, and other expenses directly related to the issuance—are not considered part of the cash inflow from the sale of the bonds. Instead, they should be subtracted from the total cash proceeds received.

This treatment aligns with the principle that the net amount received by the issuer after accounting for costs provides a more accurate reflection of the cash inflow from the bond financing. By recording these costs net of the cash proceeds, the issuer presents a clearer view of the actual funds available to them as a result of the bond issuance.

In financial reporting, bond issuance costs are also typically capitalized and amortized over the life of the bonds, but for the purpose of calculating initial cash proceeds, it is essential that they are deducted to arrive at a net figure. This approach ensures that the financial statements accurately represent both the liabilities incurred through the bonds and the true cash inflow to the entity.