Question

Strafford Inc. elected to use the nature of distribution approach for distributions from its equity-method investment purchased at the beginning of 20X1. In the statement of cash flows, Strafford should classify dividends received from its investment:_________
a. as operating activity.
b. as investing activity.
c. based on the nature of the earnings generated by the investee company.
d. as part operating activity and part investing activity.

Answer 1

Answer:

a. as operating activity.

Explanation:

The dividend received is the return from the investment made, Hence it will be classified as income.

As dividend received is income, so the income will be classified as the operating activity of the business.

Operating activities are all those income and expense transactions that are executed to operate the business.