Question

1. The purchase of treasury stock will have what impact on the statement of cash flows?

A. Cash inflow from financing activities

B. Cash outflow from financing activities

C. Cash inflow from investing activities

D. Cash outflow from investing activities

2. Cash inflows or outflows from investing activities would involve all of the following

except:

A. The proceeds from the sale of equipment

B. The purchase of buildings

C. The receipt of interest income on short-term investments

D. The purchase of marketable securities

3. The purchase of equipment is reported in the statement of cash flows as an:

A. Outflow under operating activities

B. Inflow under operating activities

C. Outflow under investing activities

D. Outflow under financing activities

Answer 1

1.

Answer is B. Cash outflow from financing activities.

Purchase of treasury stock refers to purchasing own shares by company from stockholders.Purchase of treasury stocks requires cash payment to be made by company to stockholders. So. it is cash outflow from financing activities.

2.

Answer is D. The purchase of marketable securities.

Purchase of marketable securities is considered in Cash and Cash Equivalents. Marketable securities are those securities which are highly liquid and easily converted into cash at any point of time. So, marketable securities are part of Cash equivalents and never shown in investing activities.

3.

Answer is c. Outflow under investing activities.

Purchase of Equipment is an outflow under investing activities. Purchasing Equipment is an investment made by company in business and purchase requires cash outflow.