Which of the following is not a financing activity in the statement of cash flows?
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A. B. C. D.C
The payment of interest on debt is not a financing activity.
In the statement of cash flows, financing activities refer to the activities that involve obtaining or repaying capital from investors and creditors. These activities affect the long-term liabilities and equity of a company. The options provided are A) repurchase of common stock, B) issuance of new debt, C) payment of interest on debt, and D) cash dividend.
Let's analyze each option to determine which one is not a financing activity:
A) Repurchase of common stock: This activity involves a company buying back its own shares from the open market. When a company repurchases its stock, it uses its available cash to do so. This reduces the cash balance and affects the equity section of the balance sheet. Repurchasing stock is considered a financing activity because it affects the company's equity position and the overall ownership structure. Therefore, A) repurchase of common stock is a financing activity.
B) Issuance of new debt: This activity involves a company obtaining new debt, typically in the form of bonds or loans, to finance its operations or investments. When a company issues new debt, it receives cash inflows from investors or creditors. These inflows increase the cash balance and impact the liability section of the balance sheet. Issuing new debt is considered a financing activity because it affects the company's long-term liabilities. Therefore, B) issuance of new debt is a financing activity.
C) Payment of interest on debt: This activity involves a company making interest payments to its creditors on its outstanding debt. When a company pays interest, it uses its available cash to fulfill its contractual obligations. While this activity is related to debt, it is not classified as a financing activity in the statement of cash flows. Instead, it falls under the operating activities section, which includes cash flows related to the company's primary business operations. Therefore, C) payment of interest on debt is not a financing activity.
D) Cash dividend: This activity involves a company distributing cash to its shareholders as a return on their investment. When a company pays dividends, it uses its available cash to distribute profits to shareholders. Cash dividends reduce the cash balance and affect the equity section of the balance sheet. Dividends are considered a financing activity because they affect the company's equity position and the distribution of profits. Therefore, D) cash dividend is a financing activity.
In conclusion, the option that is not a financing activity in the statement of cash flows is C) payment of interest on debt.