Redstone Inc. has the following debt outstanding on December 31, 2012:

10% bonds payable, due 12/31/16.............................................................$500,000

Discount on bonds payable........................(40,000)...................................$460,000

On this date, Redstone retired the entire bond issue by paying cash of $510,000.

Required

1. Identify and analyze the transaction to record the bond retirement.

2. Describe how the bond retirement would be reported on the statement of cash flows assuming that Redstone uses the indirect method.