A Company Purchases Land Using Its Ordinary Shares

question 71

Multiple Choice

A company purchases land using its ordinary shares.Where would this transaction appear when the company prepares the cash flow statement?

• A)The purchase of land would be presented in the financing activities section as a cash payment.
• B)The purchase of land would be presented in the investing activities section as a cash payment under both methods.
• C)The purchase of land would be presented in the operating activities section as a reduction in profit.
• D)The purchase of land would be presented in the non-cash investing and financing activities section.

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Definitions:

P/E Effect

The P/E effect is a market anomaly observed where stocks with lower Price-to-Earnings (P/E) ratios tend to outperform those with higher P/E ratios over time.

Strong-form Efficiency

A market hypothesis suggesting that prices fully reflect all available information, both public and private, making it impossible for investors to consistently achieve higher returns.

Semistrong-form Efficiency

A hypothesis that asserts the market price of securities already reflects all publicly available information, making it hard to achieve higher returns.

Weak-form Efficiency

A market efficiency theory suggesting that past stock prices and volume data do not affect stock prices and thus cannot predict future stock movements.