Which of the following is classified as an investing activity on the statement of cash flows?

• A. Issuance of common stock
• B. Payment of dividends
• C. Payment of salaries
• D. Purchase of equipment

Answer: (D)

Verified step by step guidance

1. Understand the classification of cash flow activities: The statement of cash flows is divided into three main categories: operating activities, investing activities, and financing activities. Investing activities generally involve transactions related to the acquisition or disposal of long-term assets and investments.
2. Analyze the options provided: Review each option to determine which category it falls under. For example, issuance of common stock and payment of dividends are financing activities, while payment of salaries is an operating activity.
3. Focus on the correct answer: The purchase of equipment is classified as an investing activity because it involves acquiring a long-term asset that will be used in the business operations.
4. Relate the purchase of equipment to cash flow: When equipment is purchased, cash is used to acquire the asset, which is recorded as a cash outflow under investing activities on the statement of cash flows.
5. Summarize the classification: Confirm that the purchase of equipment aligns with the definition of investing activities, as it represents the use of cash to invest in the company's future operations through the acquisition of long-term assets.