Multiple Choice
Simon has purchased a fixed immediate annuity. Which of the following best describes what Simon will receive from this investment?
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7. Receivables and Investments
Introduction to Investments in Securities
Multiple Choice
The purchase and sale of long-term assets and current investments are classified as which type of cash flow activity on the statement of cash flows?
A
Non-cash activities
B
Investing activities
C
Operating activities
D
Financing activities
Verified step by step guidance1
Understand the classification of cash flow activities: The statement of cash flows categorizes cash flows into three main types: operating activities, investing activities, and financing activities. Non-cash activities are disclosed separately and do not involve actual cash flow.
Recognize the nature of the transaction: The purchase and sale of long-term assets and current investments involve changes in the company's investment portfolio or fixed assets, which are typically classified under investing activities.
Differentiate between the categories: Operating activities involve day-to-day business operations, such as cash received from customers or cash paid to suppliers. Financing activities involve transactions related to raising capital or repaying debt, such as issuing shares or repaying loans. Investing activities focus on the acquisition or disposal of long-term assets and investments.
Relate the transaction to investing activities: Since the purchase and sale of long-term assets and current investments directly impact the company's investment portfolio, these transactions are classified as investing activities on the statement of cash flows.
Confirm the classification: Ensure that the transaction does not fall under operating or financing activities, and verify that it aligns with the definition of investing activities, which include cash flows related to the acquisition and disposal of long-term assets and investments.
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