Question

Three categories of activities (operating, investing, and financing) generate or use the cash flow in a company. In the following table, identify which type of activity is described below.

a. Fitzi Chemical Co. earns revenue from its cash receipts from royalties.
b. The Yum chain of restaurants conducts an initial public offering to raise funds for expansion.
c. A company records a decrease in its total raw materials inventory from the previous year.
d. A pharmaceutical company buys marketing rights to sell a drug exclusively in East Asian markets.

Answer 1

Answer and Explanation:

The classifications are as follows:

a. Operating activities: As there is a cash receipts from royalities so the same come under this activity

b. Financing activities: As the funds are raised so the same would be come under this activity.

c. Operating activities: As there is a decrease in raw material inventory as compared to the last year so the same is come under this activity

d. Investing activities: As the marketing rights are purchased so the same would be come under this activity