A Software Company Acquires a Smaller Company in Order to Acquire

question 26

Multiple Choice

A software company acquires a smaller company in order to acquire the patents that it holds. Where will the cost of this acquisition be recorded on the statement of cash flows?

• A) as an outflow under operating activities
• B) as an outflow under investment activities
• C) as an outflow under financial activities
• D) not recorded on the statement of cash flows

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Definitions:

Cost of Selling Goods

The total expense directly incurred from the production or purchase of items sold by a business.

Cost of Goods Sold

An expense recorded on the income statement that reflects the total cost of producing or purchasing the goods that a company has sold during a specific period.

Cost of Goods Sold

Represents the total cost of all goods that were sold over a specific period, including the costs associated with production or purchase.

Gross Profit

The difference between revenue and the cost of goods sold (COGS), indicating the efficiency of a company in using its labor and supplies.