On a classified balance sheet, which of the following is considered a financing activity?

• A. Purchasing equipment for company use
• B. Issuing common stock to raise capital
• C. Collecting cash from customers for sales
• D. Paying salaries to employees

Answer: (B)

Verified step by step guidance

1. Understand the concept of financing activities: Financing activities are transactions that involve raising capital or returning capital to the owners or creditors of the business. These activities typically include issuing stock, borrowing money, or repaying debt.
2. Analyze each option provided in the problem: Determine whether each activity falls under financing, investing, or operating activities based on its nature.
3. Option 1: Purchasing equipment for company use - This is considered an investing activity because it involves acquiring long-term assets for the business.
4. Option 3: Collecting cash from customers for sales - This is considered an operating activity because it relates to the core business operations of generating revenue.
5. Option 4: Paying salaries to employees - This is also an operating activity because it pertains to the day-to-day expenses of running the business. Therefore, the correct answer is Option 2: Issuing common stock to raise capital, as it directly involves raising funds for the company, which is a financing activity.