CFA Practice Question

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CFA Practice Question

Which of the following should be classified as financing cash flow?

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. All of them
B. IV and V
C. I, III and IV
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.

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