Investing Cash Flows

C

Dividends received from stock investments are considered operating cash flows while dividends paid on equity are considered financing cash flows.

According to GAAP (Generally Accepted Accounting Principles) classification of cash flows, cash flows are categorized into three main categories: operating activities, investing activities, and financing activities.

Operating activities refer to cash flows that arise from the primary business operations of the company, such as sales of goods or services, payment to suppliers, and wages paid to employees.

Investing activities, on the other hand, involve the acquisition or disposal of long-term assets and investments. This category includes transactions related to the purchase or sale of property, plant, and equipment (such as office buildings), as well as investments in stocks, bonds, and other securities.

Financing activities encompass cash flows that are related to the company's capital structure, such as the issuance or repayment of debt, issuance or repurchase of equity shares, and payment of dividends.

Now, let's analyze each answer choice and determine whether it represents an investing cash flow or not:

A. Purchase of an office building: This transaction involves the acquisition of a long-term asset (office building). As mentioned earlier, investing activities include the purchase or sale of property, plant, and equipment, which makes this option an investing cash flow. Therefore, this choice is NOT the correct answer.

B. Gains on asset sales: This option refers to gains realized from the sale of assets. Gains or losses from the sale of assets are not classified as investing cash flows. Instead, they are reported as operating activities in the statement of cash flows. Therefore, this choice is the correct answer.

C. Dividends received from investments in stocks: Dividends received from investments in stocks represent returns earned on investments. Since this transaction involves cash inflows from investments, it falls under the investing activities category. Thus, this choice is NOT the correct answer.

D. Takeovers financed partly with cash: This option implies that cash is used as a source of financing for takeovers. Financing activities involve the inflow or outflow of cash related to the company's capital structure, such as debt or equity financing. In this case, cash is used to finance the takeover, which falls under the financing activities category, not investing activities. Therefore, this choice is NOT the correct answer.

To summarize, the correct answer to the question is B. Gains on asset sales, as it does not represent an investing cash flow according to GAAP classification.