Each Year, White Mountain Enterprises (WME) Prepares a Reconciliation Schedule

Multiple Choice

Each year, White Mountain Enterprises (WME) prepares a reconciliation schedule that compares its income statement with its statement of cash flows on both the direct and indirect method bases. In its 2018 income statement, WME reported $11,000 of interest expense on its outstanding bonds. During the year, WME paid its regular installments of $9,000 of interest in cash. In its reconciliation schedule, WME should:

A) Show a $2,000 positive adjustment to net income under the indirect method for the decrease in bond premium.
B) Show a $2,000 negative adjustment to net income under the indirect method for the decrease in bond premium.
C) Show a $2,000 positive adjustment to net income under the indirect method for the decrease in bond discount.
D) Show a $2,000 negative adjustment to net income under the indirect method for the decrease in bond discount.