CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Which of the following is an investing activity?

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
Correct Answer: C

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.
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