Choice "D" is correct. Bond discount amortization is a non-cash item that increases interest expense and therefore decreases net income. When preparing the statement of cash flows using the indirect method, the amortization of a bond discount should be eliminated by adding the amount back to net income in the operating section.
Choices "b" and "a" are incorrect. Bond discount amortization is an item that impacts interest expense on the income statement and therefore is reported in the operating section.
Choice "c" is incorrect. Bond premium amortization is a non-cash item that decreases interest expense and increases net income and should therefore be eliminated by subtracting the amount from net income in the operating section.