Which of the following is true?
A) An outflow of cash for interest payments is an investing activity.
B) An outflow of cash when convertible bonds are converted is an investing activity.
C) An outflow of cash when callable bonds are recalled by the issuer is a financing activity.
D) Payment of interest is an investing activity since we would not have interest unless we borrowed money or sold bonds to the public.

Question

Quizplus · Accepted Answer

C is correct because when a company recalls (repurchases) its callable bonds, it is directly related to the company's financing activities. This involves managing the company's capital structure and debt levels, which is why it's classified under financing activities in the statement of cash flows. Options A, B, and D are incorrect because interest payments are typically classified as operating activities, not investing activities, and the conversion of convertible bonds does not result in an outflow of cash but rather an exchange of the bond for another form of security (like stock).

Which of the Following Is True