A company sells treasury stock for an amount less than its acquisition cost. If the company prepares the statement of cash flows using the indirect method or the direct method, where would this transaction appear?
A)The sale of treasury stock would be presented in the investing activities section as a cash receipt under both methods.
B)The sale of treasury stock would be presented in the non-cash investing and financing activities section under both methods.
C)The sale of treasury stock would be presented in the operating activities section as a reduction in net income under the indirect method and as a cash receipt under the direct method.
D)The sale of treasury stock would be presented in the financing activities section as a cash receipt under both methods.

Question

Quizplus · Accepted Answer

The sale of treasury stock is a financing activity, and therefore would be presented in the financing activities section as a cash receipt under both the indirect and direct methods. Even if the sale is done at a price less than the acquisition cost, it is still considered a cash inflow from financing activities.

A Company Sells Treasury Stock for an Amount Less Than