Which of the following is an example of a significant noncash activity?

• A. Repaying a bank loan in cash
• B. Issuing common stock to purchase equipment
• C. Receiving cash from customers for services rendered
• D. Paying cash dividends to shareholders

Answer: (B)

Verified step by step guidance

1. Understand the concept of significant noncash activities: These are transactions that do not involve cash but are still important enough to be disclosed in the financial statements. Examples include issuing stock to purchase assets, converting bonds into stock, or acquiring assets through a lease.
2. Analyze the options provided in the problem: Each option represents a different type of transaction. Determine whether each involves cash or is a noncash activity.
3. Option 1: Repaying a bank loan in cash. This involves cash outflow and is not a noncash activity.
4. Option 3: Receiving cash from customers for services rendered. This involves cash inflow and is not a noncash activity.
5. Option 4: Paying cash dividends to shareholders. This involves cash outflow and is not a noncash activity. Option 2, Issuing common stock to purchase equipment, is a significant noncash activity because it does not involve cash but represents an important transaction that must be disclosed in the financial statements.