Final answer:
The purchase of a three-month U.S. Treasury bill by Mend Co. would not be reported in the Statement of Cash Flows as a separate outflow, but as part of cash equivalents due to Mend's policy of treating such short-term highly liquid investments as equal to cash.
Step-by-step explanation:
The purchase of a three-month U.S. Treasury bill by Mend Co. should be reported in the company's Statement of Cash Flows as a cash equivalent due to the company's policy of considering all highly liquid investments with an original maturity of three months or less as cash equivalents. In this case, the transaction would not be reported as an outflow in any category (operating, investing, or financing activities) but rather would be included with cash and cash equivalents held at the beginning or the end of the fiscal period, depending on the exact timing of the purchase relative to the reporting period.
When a company treats short-term, highly liquid investments like this Treasury bill as cash equivalents, the company is essentially stating that these investments are so close to cash in terms of their liquidity and risk, that they can be used to meet short-term cash demands without any significant risk of changes in value from the purchase.