Question

1.) Interest expense is classified as:

A. Operating or financing

B. Financing

C. Investing

D. Operating

2.) Dividends paid to shareholders are classified as:

A. Operating

B. Financing

C. Investing

D. Operating or financing.

3.) A valuation method typically used to value capital assets is:

A. Historical cost.

B. Replacement cost.

C. Net realizable value.

D. Present value.

Answer 1

1. Interest expense is classified as:

Answer: A. Operating or financing

Explanation: Under US GAAP, interest expense is always treated as operating cash flow item. However, under IFRS, there is an option to treat interest expense either as operating cash flows or financing cash flows.

2. Dividend paid to shareholder are classified as:

Answer: B - Financing

Explanation: Diviend paid affects the capital structure of the company. It is shown as a deduction in financing activites.

3. A valuation method typically used to value capital assets is:

Answer - A. Historical cost.

Explanation: Under Historical cost method, the asset is recorded at the value at which it is acquired. It is the most simple and most used method to value the fixed assets.

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