A Company Purchases Equipment for Use in Its Business Activities

question 140

Multiple Choice

A company purchases equipment for use in its business activities. If the company prepares the statement of cash flows using the indirect method or the direct method, where would this transaction appear?

• A)The purchase of equipment would be presented in the non-cash investing and financing activities section under both methods.
• B)The purchase of equipment would be presented in the financing activities section as a cash payment under both methods.
• C)The purchase of equipment would be presented in the investing activities section as a cash payment under both methods.
• D)The purchase of equipment would be presented in the operating activities section as a reduction in net income under the indirect method and as a cash payment under the direct method.

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Definitions:

Agency Relationship

A legal arrangement where one party, the agent, is authorized to act on behalf of another, the principal, in business dealings or other matters.

Authorized Act

An action taken by an individual or entity that is legally permitted under the law or by a governing body.

Principal

In a legal context, the main party who authorizes another (the agent) to act on their behalf in transactions or other legal matters.

Agent

An individual or entity authorized to act on behalf of another (the principal) in dealings with third parties.