How should the transactions involving marketable securities be classified in Kenny's statement of cash flows for 2010?
A) The purchase of marketable securities, sales of marketable securities, and receipt of dividends are all classified as investing activities.
B) The purchase and the sale of marketable securities are classified as investing activities; the receipt of dividends is classified as an operating activity.
C) The purchase of marketable securities is classified as an investing activity; the sale of marketable securities is classified as a financing activity; the receipt of dividends is classified as an operating activity.
D) The purchase and the sale of marketable securities are classified as investing activities; the receipt of dividends is classified as a financing activity.

Question

Quizplus · Accepted Answer

According to the indirect method of statement of cash flows, the purchase and sale of marketable securities are classified as investing activities because they represent investment in short-term financial instruments. The receipt of dividends is considered an operating activity because it represents normal business operations. Therefore, option B is the correct choice. Option A is incorrect because the receipt of dividends should be classified as an operating activity, not investing activity. Option C is incorrect because the sale of marketable securities should be considered an investing activity, not financing. Option D is incorrect for the same reason as option A.

How Should the Transactions Involving Marketable Securities Be Classified in Kenny's