- CFA Exams
- CFA Level I Exam
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 23. Understanding Cash Flow Statements
- Subject 1. Classification of Cash Flows and Non-Cash Activities
CFA Practice Question
Which of the following should be classified as investing cash flow?
II. Purchase and sale of equity securities of other entities
III. Loans to other entities and collection of loans to other entities
IV. Issuance and redemption of debt (bonds and notes)
V. Issuance of equity securities and reacquisition of capital stock
I. Purchase and sale of debt of other entities
II. Purchase and sale of equity securities of other entities
III. Loans to other entities and collection of loans to other entities
IV. Issuance and redemption of debt (bonds and notes)
V. Issuance of equity securities and reacquisition of capital stock
A. I and II
B. I, II and III
C. II and V
Explanation: Purchase of debt and equity securities of other entities (sale of debt or equity securities of other entities) and loans to other entities (collection of loans to other entities) are considered investing activities. However, issuance of debt (bonds and notes) and equity securities are financing cash inflows, and payment of dividends, redemption of debt, and reacquisition of capital stock are financing cash outflows.
User Contributed Comments 5
| User | Comment |
|---|---|
| kalps | Good question |
| shasha | on B/S, lower left for "investment activities", lower right for "finance activities". |
| Xocrevilo | Key term: "other entities" |
| endurance | the key words are: purchase/sale (investing) versus issuance (financing). Works for me |
| victorpang | Other Entities can mean the debtors resulting from credit sales. |