Question

9. The purchase of stock in another company is classified as a financing activity. True/False

12. When preparing the operating activities section of the statement of cash flows using the indirect method, decreases in current operating liabilities are added to net income. True/False

13. The gain or loss from retirement of debt is reported under cash flows from operating activities on the statement of cash flows using the indirect method. True/False

Answer 1

Question 9

Answer----False

Purchase of stock in another company is an investing activity not a financing activity. Investing activities includes purchase and sale of long term assets of the business including investments.

Question 12

Answer----False

Decrease in current liabilities are deducted because decrease in current liabilities indicate use of cash in the during the period. Decrease in current liabilities states decrease in liabilities is a result of cash paid for those liabilities.

Question 13

Answer----True

Gain or loss on retirement of debts is a financing activity but since it is adjusted with net income to calculate cash from operations we say that its reported in operating cash flow section.