Multiple Choice
Which of the following formulas describes the calculation of cash flow from operating activities using the indirect method?
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13. Statement of Cash Flows
Introduction to the Statement of Cash Flows
Multiple Choice
Which of the following would be included in cash flows from investing activities on the statement of cash flows?
A
Purchase of equipment
B
Issuance of common stock
C
Payment of salaries to employees
D
Payment of dividends
Verified step by step guidance1
Understand the classification of cash flows: The statement of cash flows is divided into three main categories: operating activities, investing activities, and financing activities. Investing activities typically involve transactions related to the acquisition or disposal of long-term assets and investments.
Analyze the options provided: Review each option to determine whether it falls under investing activities. Investing activities include transactions such as the purchase or sale of equipment, property, or investments.
Evaluate 'Purchase of equipment': Purchasing equipment is considered an investing activity because it involves acquiring a long-term asset that will be used in the business operations.
Evaluate 'Issuance of common stock': Issuing common stock is a financing activity because it involves raising capital from shareholders, not the acquisition or disposal of long-term assets.
Evaluate 'Payment of salaries to employees' and 'Payment of dividends': Payment of salaries is an operating activity as it relates to day-to-day business operations. Payment of dividends is a financing activity because it involves distributing profits to shareholders.
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