In a statement of cash flows, which of the following would be classified as an investing...

In a statement of cash flows, which of the following would be classified as an investing activity?

Multiple Choice The sale of the company's own common stock for cash. The sale of equipment. Interest paid to a lender. The issuance of bonds payable.

Expert Solution

Answer:

Financing activities include those activities that result in a change in size & composition of owner's equity & borrowings. Cash flow from financing activities involves the issue of common equity, payment of the debt, etc.

Sale of the company's own common stock for cash & issuance of bonds payable are shown in cash flow from financing activities, however, interest paid to lender is considered under the cash flow from operating activities & the same is considered in the income statement to derive the net income.

Investing activities include acquisition & disposal of investment & long term assets that are not included in cash & cash equivalents. For example acquisition of machinery, Sale of investment etc.

Accordingly, the sale of equipment would be classified as an investing activity & therefore, Option (b) i.e. "The sale of equipment" is the correct answer.

ekkarill92 answered 2 years ago

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