Final answer:
Classifying cash flow activities, net income is operating; paid cash dividends, issuing common stock, and issuing bonds are all financing activities. These classifications are important for understanding business decisions and financial capital sources.
Step-by-step explanation:
The student's question involves classifying different types of cash flow activities into operating, investing, or financing activities. Here are the classifications:
- Net income is an example of an operating cash flow because it results from the company's primary business activities.
- Paid cash dividends are classified as financing activities, as they represent cash outflows to investors and are associated with the company's capital structure.
- Issuing common stock is a financing activity as it relates to raising capital by selling ownership in the company.
- Issuing bonds is also a financing activity because it is a method of borrowing through which the company raises funds for its operations or investments.
When businesses make decisions that involve spending currently to earn profits in the future, they often engage in investing activities.
However, to fund these investments, they may need to consider various sources of financial capital like early-stage investors, reinvesting profits, borrowing through banks or bonds, or selling stock. Each of these activities has implications for cash flow classification.