- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 4. Analyzing Statements of Cash Flows I
- Subject 2. Classification of Cash Flows and Non-Cash Activities
CFA Practice Question
Which of the following would not appear in the operating activities section of the statement of cash flows?
B. Cash payments to employees for salaries, wages, benefits, etc.
C. Cash payments for income taxes
D. Cash payments made on borrowings (repaying the amounts borrowed)
A. Cash collected from customers for goods and services
B. Cash payments to employees for salaries, wages, benefits, etc.
C. Cash payments for income taxes
D. Cash payments made on borrowings (repaying the amounts borrowed)
Correct Answer: D
Cash transactions relating to a firm's own debt or equity are classified as financing activities according to SFAS No. 95. Note that D does not include interest payments!
User Contributed Comments 9
| User | Comment |
|---|---|
| Studog | Interest on borrowings would be operating cashflow? |
| Gina | yes |
| myanmar | what about zero bonds? |
| bahodir | When zero coupon bonds are issued, interest is included in the principal amount or face value of the bonds. Although coupon payments are not made during the life of the bonds, the company accrues interest expense on them, which is paid when the bonds are repurchased or redeemed at maturity. Hence, when a company repurchases or redeems zero coupon bonds, it should classify the cash outflow for the repayment of principal amount received from bondholders as a financing use of cash and the amount paid in excess of the principal as operating use of cash. |
| mirfanrana | cashh transaction relating to firms own debt or equity are classified as finacing activity. |
| boddunah | zero coupons are issued at discount.it is financing acctivity.no interest paid . no operating activity. when zeros are paid financing cash ouflow. |
| johntan1979 | If it is cash payments received on borrowings, it is investing activity. |
| robbiecow | Always think of the Direct Method for CFO and it will help with these types of questions. CFO = Cash Received from Customers - Cash Paid in the Production of Goods and Services - Cash Paid for Operating Expenses - Cash Paid for Interest - Cash Paid for Taxes |
| sshetty2 | I believe as per the answer to this question, they mean cash payments towards the principle of a 'borrowing' would be classified as a financing activity. Cash payments for interest would be classified as an operating activity. |