Which of the following represents an investing activity in the statement of cash flows ________.
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A. B. C. D.D
The sale of a fixed asset at a loss is classified under investing activities.
In the statement of cash flows, investing activities are reported to show the cash flows resulting from the acquisition or disposal of long-term assets and other investments. They involve transactions that affect the company's investments in resources and assets that are expected to generate future income or provide strategic benefits.
Now let's analyze each option to determine which one represents an investing activity:
A. Stock dividend: A stock dividend is a distribution of additional shares of stock to existing shareholders. It does not involve any cash outflow or inflow, as it is essentially a reallocation of equity among existing shareholders. Therefore, a stock dividend does not represent an investing activity in the statement of cash flows.
B. Purchase of inventory: The purchase of inventory, which refers to the acquisition of goods for sale, is categorized as an operating activity rather than an investing activity. It is reported under the operating activities section of the statement of cash flows since it relates to the company's core operations.
C. Depreciation of plant assets: Depreciation is a non-cash expense that reflects the allocation of the cost of a plant asset over its useful life. While depreciation impacts the company's net income, it does not involve any actual cash flow. Therefore, the depreciation of plant assets does not represent an investing activity in the statement of cash flows.
D. Sale of plant assets at a loss: The sale of plant assets at a loss represents an investing activity. When a company sells a plant asset, such as equipment or machinery, at a lower price than its carrying value, it results in a loss. This loss is reported in the income statement and affects the net income of the company. However, the cash received from the sale is considered an inflow from an investing activity since it represents the proceeds from the disposal of a long-term asset.
In summary, the option that represents an investing activity in the statement of cash flows is:
D. Sale of plant assets at a loss