Which one of the following is subtracted from cash flows from financing activities on the statement of cash flows?

• A. Proceeds from issuing bonds
• B. Issuance of common stock
• C. Receipt of interest income
• D. Payment of cash dividends to shareholders

Answer: (D)

Verified step by step guidance

1. Understand the structure of the statement of cash flows, which is divided into three sections: operating activities, investing activities, and financing activities. Financing activities involve transactions related to the company's equity and debt.
2. Identify the nature of each option provided in the question: 'Proceeds from issuing bonds' and 'Issuance of common stock' are inflows of cash under financing activities, while 'Receipt of interest income' is typically classified under operating activities.
3. Recognize that 'Payment of cash dividends to shareholders' represents an outflow of cash related to financing activities, as it involves returning funds to equity holders.
4. Recall that cash flows from financing activities include both inflows (e.g., issuing bonds or stock) and outflows (e.g., repaying debt or paying dividends). Outflows are subtracted from the total cash flows in this section.
5. Conclude that the correct answer is 'Payment of cash dividends to shareholders,' as it is the only option that represents a subtraction from cash flows in the financing activities section.