The purchase of debt securities to be held to maturity would be classified into which of the following categories for purposes of disclosure in the Statement of Cash Flows?
A) Operating cash flow
B) Investing cash flow
C) Financing cash flow
D) Item reconciling earnings and operating cash flow
E) Not a cash flow or reconciling item

Question

Quizplus · Accepted Answer

The purchase of debt securities to be held to maturity falls under the category of investing cash flow activities. This is because it involves the acquisition of an asset that will generate future returns, and therefore qualifies as an investment in the business. Operating cash flow activities relate to the company's core operations, while financing cash flow activities concern the raising and repayment of funds from external sources. The purchase of debt securities does not qualify as a reconciling item, as it does not relate to the differences between earnings and operating cash flows.

The Purchase of Debt Securities to Be Held to Maturity