In: Accounting
Which of the following would be classified as a financing activity on the statement of cash flows?
A. Paying cash dividends.
B. Paying interest on a long-term note.
C. Issuing long-term notes for plant assets.
D. Purchasing machinery with cash
Correct Answer : A
Paying Cash Dividends to Shareholders would be a Financing Activity.
Just to brush up :
Financing activities include repayment of short-term loans and/or long-term loans, the retirement of bonds payable, the purchase of a company's own stock, the declaration and payment of dividends, and other decreases in long-term liabilities and stockholders' equity.
Then why are others wrong :
Lets understand,
B) Paying interest on a long term note would go to the profit & loss account / income Statement as an Expense and would be treated as an OPERATING ACTIVITY.
C) Issuing Long Term Notes for plants assets : My Friends there is No Cash Flow here its a non cash transaction (to understand it may also be called as barter), But remember, had only Notes been issued for cash then we would treat it as a Financing Activity or for that matter only plant would have been purchased for cash we would put it in Investing Activity.
D) Machinery for Cash is a plain vanilla Investing Activity. No Confusion
Hope that helps!