Question

Which one of the following transactions should be classified as a financing activity on the statement of cash flows? a. Purchase of equipmentb. Purchase of the company's own stockc. Sale of a long-term investmentd. Payment of interest to a lender

Answer 1

Answer: B- Purchase of the company's own stock

Explanation:

Stock repurchases is a transactions that causes a negative cash flow from financing activities

Answer 2

Cash flow statement is one of the financial statements that is prepared by institutions that involves summarizing of the cash or its equivalents that enter and leave the institution. The transaction that should be classified as a financing activity on the statement of cash flows is option B: purchase of the company's own stock.

Cash flow statement

The above answer is explained in further detail below:

• Cash flow can be categorized in 3 parts- cash flow from operating activities, cash flow from investing activities and cash flow from financing activities.

• Purchase of the company's own stock will come under the head cash flow from financing activities because this transaction would cause a negative cash flow from this sub-head.

Therefore, the correct answer is option B.

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