Question

Blue River Company Transactions:

1. Acquired new machinery for production.
2. Issued bonds to raise capital.
3. Sold products to customers.
4. Purchased shares of another company's stock.
5. Paid dividends to shareholders.

a) Operating
b) Financing
c) Investing
d) Not determinable

Answer 1

1. Acquiring new machinery for production is considered an Investing activity.
2. Issuing bonds to raise capital is a Financing activity.
3. Selling products to customers falls under Operating activities.
4. Purchasing shares of another company's stock is an Investing activity.
5. Paying dividends to shareholders is a Financing activity.

Step-by-step explanation:

The question involves classifying various transactions undertaken by Blue River Company into categories based on their nature.

Firms often make financial decisions that involve current expenditures in anticipation of future profits, such as acquiring long-term assets or conducting research and development.

To facilitate these investments, firms may need to access financial capital through various means like borrowing from banks, issuing bonds, or selling stock.

Looking at the Blue River Company transactions:

1. Acquiring new machinery for production is considered an Investing activity.
2. Issuing bonds to raise capital is a Financing activity.
3. Selling products to customers falls under Operating activities.
4. Purchasing shares of another company's stock is an Investing activity.
5. Paying dividends to shareholders is a Financing activity.

These classifications are important to understand as each type of activity has different implications for a company's cash flow and control over its operations.