Question

Which of the following transactions does not result in either a cash inflow or a cash outflow?

O a company purchased some of its own stock from a stockholder.
O payment of a cash dividend
O. amortization of a patent.
O sale of equipment at book value.

Answer 1

The correct answer is amortization of a patent, as it is a non-cash accounting transaction. Purchasing stock, paying dividends, and selling equipment involve actual cash transactions.

Step-by-step explanation:

The correct answer is option amortization of a patent. Amortization of a patent is an accounting method that systematically reduces the value of the intangible asset over its useful life, but it does not involve a direct flow of cash.

The other options, such as purchasing company stock from a stockholder, paying a cash dividend, and selling equipment at book value, all involve actual cash transactions, whether as inflows or outflows.

When a company issues stock, it gains financial capital without a direct obligation for cash payments like interest, which is significant when a company wishes to retain control over operations and avoid the burden of debt payments.

This contrasts with issuing bonds or borrowing from a bank, whereby the company commits to scheduled interest payments regardless of income. This knowledge is essential for understanding the implications of different financing decisions a company can make.

The correct answer is option amortization of a patent. Amortization refers to the process of spreading the cost of an intangible asset, such as a patent, over its useful life. It does not involve any cash transactions, as it is a non-cash expense recorded in the income statement.