Final answer:
The purchase of new equipment or construction of new facilities is recorded in the Investing Activities section of a firm's cash flow statement. This section delineates capital expenditures that reflect investments made for business growth and capacity, which play an essential role in long-term profitability and are indicative of a firm's strategy for reinvesting its profits.
Step-by-step explanation:
The question relates to how much of the equipment purchased by a firm will be reported in the Investing Section on the cash flow statement. When a firm buys new equipment or constructs a new facility, it represents an investment in the business's capacity to operate and grow. These capital expenditures are critical parts of sustaining economic growth, as evidenced by the $1.4 trillion invested by U.S. firms even during a sluggish economy in 2009. The purchasing of equipment or building facilities are line items that fall under the Investing Activities section of a cash flow statement. This section reflects the flow of cash that is used for investments in the business, including the purchase of physical capital assets like equipment.
Furthermore, even when the economy is weak, such as in 2009, investment in equipment and structures is essential as it often leads to an increase in corporate profits over the long term, which was observed through the 9.7% growth in profits for the S&P 500 companies. Additionally, the social benefits of these investments, as mentioned with the Gizmo Company's gadgets, indicate that these expenditures are not only beneficial to the firms themselves but also offer a societal return, enhancing the significance of reporting them accurately on the cash flow statement.
Finally, it's essential to note that cash flows from investing activities provide insights into a company's growth potential. The amounts spent on equipment or facilities would be recorded here, showcasing to investors and stakeholders where the firm is directing its financial resources for long-term benefits, aligning with its strategies for reinvesting profits for growth. Any expenditures related to research and development, as in the case of the Gizmo Company's demand for financial capital, which is expected to offer a return on investment, will similarly be included in this section.