Which of the following is an example of an investing activity?

• A. Paying salaries to employees
• B. Paying dividends to shareholders
• C. Issuing common stock to raise capital
• D. Purchasing equipment for cash

Answer: (D)

Verified step by step guidance

1. Understand the definition of investing activities: Investing activities involve the acquisition or disposal of long-term assets and other investments not included in cash equivalents. These activities are typically related to the purchase or sale of property, plant, equipment, or investments.
2. Analyze the options provided: Paying salaries to employees is an operating activity because it relates to the day-to-day operations of the business. Paying dividends to shareholders is a financing activity because it involves the distribution of profits to owners. Issuing common stock to raise capital is also a financing activity as it pertains to obtaining funds from investors.
3. Focus on the correct answer: Purchasing equipment for cash is an investing activity because it involves the acquisition of a long-term asset (equipment) that will be used in the business operations.
4. Relate the correct answer to the cash flow statement: In the cash flow statement, cash outflows for purchasing equipment are reported under the investing activities section, reflecting the use of cash to acquire long-term assets.
5. Summarize the reasoning: The key distinction is that investing activities are tied to the acquisition or disposal of long-term assets, which is why purchasing equipment for cash qualifies as an investing activity.