Homework Answers
The correct option is When the company recieves cash from a bank loan is a financing activity in the cash flow statement.
When the company purchases equipment using cash - This activity is an investing activity, since the company is using its funds to purchase an equipment which will give them long term benefit, so it is an investing activity. Purchase of equipment will lead to decrease in cash flow from the investing activity.
When the company lends money to another entity - This activity can be treated as either operating activity as receiveables or as investing activity depending on the type of business carried out by the company. If the company is a finance institution or in the business of financing or providing finance to other entity is their main business then this would be considered as operating activity. In case the company is not a finance institution, this activity would be treated as investing activity.
Finance Institution - Operating activity
Non finance institution - Investing activity
When the company sells an investment - This activity is considered as investing activity. When an investment is sold, the sale proceeds from such investment will increase the cash flow from investing activity. Even if the investment is sold at a loss, then also it will increase the cash flow from the investing activity.
When the company receives dividends - This activity is classified as investing activity because a company receives dividend only when they have made any investment. Since the company has investment as a result of which the company receives dividend and this will increase cash flow from the investing activity.
When the company receives cash from a bank loan - This activity is considered as financing activity. Financing activities are those activities by which a firm raises fund and then repays them. Hence, receiving bank loan is a financing activity.
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