Negative Amortization of Deferred Financing Costs on CFS
I am having trouble with how the line item "amortization of deferred financing costs" can be negative. To illustrate, say in at year 0 company XYZ issued a 2-year (or 8 quarters) $100,000 bond with a 5% interest rate and it costed the company $8,000 to do so. In this case, the interest expense recorded on the income statement after the first quarter would be comprised of the $5,000 in cash interest and ($8,000/8=) $1,000 in deferred financing costs, or $6,000 total on IS.
To find cash interest, we would take $6,000 from IS and subtract $1,000 to get $5,000, and the $1,000 would show up as a positive number on the CFS. However, I am currently looking at a company where the deferred financing cost is negative. I know that the company issued new debt in this period and refinanced old debt, but I do not understand why it would be negative. Say they were refinancing our bond from above after 2 quarters, wouldn't they just amortize the remaining $7,000 all in one quarter and the line item be positive? Please help!
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