A software company acquires a smaller company in order to acquire the patents that it holds.Where will the cost of this acquisition be recorded on the statement of cash flows?
A)as an outflow under Operating Activities
B)as an outflow under Investment Activities
C)as an outflow under Financial Activities
D)The acquisition would not be recorded on the statement of cash flows.

Question

Quizplus · Accepted Answer

The cost of acquiring another company is typically classified as an investing activity on the statement of cash flows. Investing activities are cash outflows related to the purchase or sale of long-term assets, such as property, plant, and equipment or investments in other companies. In this case, the acquisition of the smaller company and its patents would be considered a long-term investment by the software company.

A Software Company Acquires a Smaller Company in Order to Acquire