Question

A company loaned $1,000,000 with interest at 7% to another company. The interest revenue from this...

A company loaned $1,000,000 with interest at 7% to another company. The interest revenue from this loan would be reported on the statement of cash flows as a:

cash inflow from operating activities.

cash inflow from investing activities.

cash inflow from financing activities.

noncash investing and/or financing activity.
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Answer #1

The Correct answer is Cash inflow from operating activities.

When a company gives loans certain amount to another company with a view to earn interest income then such interest income will be reported as Cash inflow from operating activities as providing loan to another company can be considered as business activity for the company. It may provide loans during its ordinary course of business. It is to be noted that cash inflow from operating activities will include those items which arise due to operations or activities performed by a company.

The company had granted the loan amounting to $1,000,000 with interest at 7% to another company to earn interest income and also to get back the principal amount of the loan. Since interest income arises from the operations of company (granting loans) it should be reported in cash inflow from operating activities.

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