Final answer:
Cash collected from customers is an Operating Activity under US GAAP. Issuing stock and taking on debt are considered Financing Activities. The correct answer is an option (a)
Step-by-step explanation:
Among the choices provided, cash collected from customers is considered an Operating Activity under US GAAP. Operating activities are the primary revenue-producing activities of the business and other activities that are not investing or financing activities. Cash flows from operating activities include transactions from the operations of the business, such as cash received from customers, cash paid to suppliers and employees, interest paid, and taxes paid.
Proceeds from issuing stock and principal amounts received from taking on debt are considered financing activities. Financing activities involve long-term liabilities and equity, including issuing debt, repaying debt, issuing stock, and paying dividends.
The money listed under assets on a bank balance sheet may not be physically present in the bank because banks operate under a fractional reserve banking system. Loans made by the bank, although recorded as assets, represent funds that the bank has lent out to borrowers. Therefore, much of what is listed as cash or cash equivalents is likely deployed in various loans or investments.
If you are in the position of buying loans in the secondary market, various factors influence the price you would be willing to pay:
- If a borrower has been late on a number of loan payments, you would likely pay less for the loan due to increased risk.
- With interest rates in the economy as a whole having risen since the bank made the loan, you might pay less because the loan's fixed interest rate is now less attractive.
- If the borrower is a firm that has declared high profits, you may pay more, as the firm's increased profitability typically reduces the risk of default.
- When interest rates in the economy have fallen since the loan was made, you might pay more because the loan's interest rate may now be more competitive.