Question

During the year, Deltech Inc. acquired a long-term productive asset for $5,000 and also borrowed $10,000 from a local bank. These transactions should be reported on Deltech's Statement of Cash Flows as:

a) Investing activities: $5,000 cash outflow, Financing activities: $10,000 cash inflow
b) Investing activities: $5,000 cash outflow, Financing activities: $10,000 cash outflow
c) Operating activities: $5,000 cash outflow, Financing activities: $10,000 cash inflow
d) Operating activities: $5,000 cash inflow, Financing activities: $10,000 cash outflow

Answer 1

The correct answer is a) Investing activities: $5,000 cash outflow, Financing activities: $10,000 cash inflow.

Step-by-step explanation:

The correct answer is a) Investing activities: $5,000 cash outflow, Financing activities: $10,000 cash inflow.

When Deltech Inc. acquired a long-term productive asset for $5,000, it involved a cash outflow and should be classified as an investing activity on the Statement of Cash Flows. This is because the acquisition of a long-term asset is considered an investment in the company's future.

The borrowing of $10,000 from a local bank resulted in a cash inflow and should be classified as a financing activity. Borrowing money represents an inflow of funds to the company, and it falls under the financing activities section of the Statement of Cash Flows.