Question

Financing activities involve transactions with lenders (e.g., notes payable) or transactions with investors (e.g., common stock). Which of the following best defines financing activities?

a) Transactions with lenders
b) Transactions with customers
c) Transactions with suppliers
d) Transactions with competitors

Answer 1

The correct option is a). Financing activities include transactions related to borrowing from banks, issuing bonds, and selling stock to manage and obtain financial capital for the company. These are interactions with lenders and investors, involving consideration of control, risks, and potential returns associated with each type of funding.

Step-by-step explanation:

Financing activities typically refer to transactions with lenders, such as issuing bonds or notes payable, and interactions with investors, like selling stock or managing equity. These activities are critical for businesses as they navigate ways to fund operations, growth, and expansions. For instance, when a company needs large amounts of financial capital, it may choose to engage in financing activities such as borrowing through banks, issuing bonds, or selling stock to early-stage investors. Each option comes with trade-offs such as maintaining control over operations versus answering to a board of directors and shareholders. When considering how to invest in financial assets, it is essential for investors to balance their objectives against the risks and returns of different financing activities.