A Company Acquires Its Own Stock to Hold as Treasury

question 98

Multiple Choice

A company acquires its own stock to hold as treasury stock. If the company prepares the statement of cash flows using the indirect method or the direct method, where would this transaction appear?

• A)The acquisition of treasury stock 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.
• B)The acquisition of treasury stock would be presented in the non-cash investing and financing activities section under both methods.
• C)The acquisition of treasury stock would be presented in the financing activities section as a cash payment under both methods.
• D)The acquisition of treasury stock would be presented in the investing activities section as a cash payment under both methods.

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Definitions:

Combining Form

A form used in the construction of medical and scientific terminology, typically a root with a vowel at the end that allows it to be connected to other terms.

Tumor

An abnormal mass of tissue that forms when cells grow and divide more than they should or do not die when they should.

Malignant

Referring to a severe and progressively worsening condition, especially concerning tumors that are cancerous and can spread to other body parts.

Suffix

An affix placed at the end of a word or stem to modify its meaning.