Which of the following is considered a significant noncash activity in financial accounting?

• A. Collecting cash from customers
• B. Purchasing inventory with cash
• C. Issuing common stock to acquire land
• D. Paying cash dividends to shareholders

Answer: (C)

Verified step by step guidance

1. Understand the concept of noncash activities: Noncash activities are transactions that do not involve cash but still have a significant impact on the financial position of a company. These activities are disclosed in the notes to the financial statements or in a separate schedule accompanying the statement of cash flows.
2. Review the examples provided in the problem: Analyze each option to determine whether it involves cash or is a noncash activity. For example, collecting cash from customers and purchasing inventory with cash are cash transactions, not noncash activities.
3. Focus on the correct answer: Issuing common stock to acquire land is a noncash activity because it involves exchanging equity (common stock) for a tangible asset (land) without the use of cash.
4. Understand why this is significant: Noncash activities like issuing common stock to acquire land are important because they represent major investing or financing activities that affect the company's financial position but are not captured in the cash flow statement.
5. Learn how to report noncash activities: Noncash activities are typically disclosed in a separate section or note in the financial statements to ensure transparency and provide a complete picture of the company's financial transactions.