Why should I choose AnalystNotes?
AnalystNotes specializes in helping candidates pass. Period.
Basic Question 7 of 20
Which of the following is an investing activity?
B. Issuing common stock at a price in excess of stated value
C. Paying $45,000 down on a $250,000 building
D. Issuing a mortgage note for $300,000
A. Selling bonds at a price in excess of par value
B. Issuing common stock at a price in excess of stated value
C. Paying $45,000 down on a $250,000 building
D. Issuing a mortgage note for $300,000
User Contributed Comments 17
| User | Comment |
|---|---|
| Rotigga | Why isn't A: Selling bonds at a price in excess of par value, also correct? The purchase and sale of debt / equity securities of other entities are considered investing activities. |
| rickeling | Not A, so since the question says "selling bonds" we can assume that is a CFF...it doesn't mention other entities. |
| eb2568 | Rotigga, it's because investing refers to PP&E. bonds, equity, etc. would be considered financing since they are used to finance operations. |
| mirfanrana | investing refers the property plant and equipment |
| Murrayman | The notes clearly state that investing activities include disposal of investments, debt or equity. A could be construed as selling an investment due to it's capital gains. Rotigga has a point. I think the selection is perhaps phrased to mean that the company issues the bonds. |
| magicchip | @Rottiga, investment does not refer to bonds. Rather long term capital assets. |
| wankoo | How do businesses finance the operation of their business? Either through Debt(borrowing money from banks,etc. or issuing stocks) Thus, the correct answer is C because the other options mention about debt or stocks. |
| bhaynes | @ Murrayman - The disposal of investments, debit and equity, could only be perceived as Investing Activities if they were debt and equity securities of a DIFFERENT company and bought for investment purposes. I will concede that answer A is SLIGHTY misleading, but answer C is without a doubt 100% an Investing Activity so there should not be any debate whether A could possibly be correct when you have an obvious answer available. |
| johntan1979 | Issuing long-term debt is financing. Period. |
| jonan203 | living breathing people invest (in the traditional sense) in the stock market corporations invest in property/plant/equipment, financial instruments and securities are not part of PP&E |
| Shaan23 | The key here is it doesnt say OTHERS E or D. If it was somebody else's E or D we were purchasing/Selling then it would be investing. But here it's CFF. Its our own E being sold. |
| santibanez | A Notes Subject 1:Examples of investing activities: long-term investments in securities. This includes bonds, and obviously, a firm can divest by selling bonds. I don't see why A is not correct. |
| funny_val | A. Cff B. Cff C. Cfi D. Cfo Right? |
| fabsan | To me selling a bond means, selling a debt security of another issuer that we own, therefore an Investment activity. Issuing a bond at a price above par, is a financing activity. Issuing and Selling don't have the same meaning. If the question would have asked, selling a stock at a price above intrinsinc value, no one will argue that it would have been an Investment activity. |
| alexsar75 | Answer A assumes the bond is held for dealing or trading purposes, which is an operating activity, even if that is not the primary business activity. I think the question implies that by giving us the additional information that the bond is sold at a premium. Ambiguously worded question though. |
| mcbreatz | I think Alexsar brings up an important point about answer A. Even if A was not strictly a financing activity because of the wording it would still be classified as an operating activity by rule which is not what the question is asking for. |
| mversland | This is a good question for practicing choosing the best answer when others could possibly be construed as true if you overthink it. |
I just wanted to share the good news that I passed CFA Level I!!! Thank you for your help - I think the online question bank helped cut the clutter and made a positive difference.
Edward Liu
Learning Outcome Statements
describe the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data
CFA® 2024 Level I Curriculum, Volume 2, Module 4.