[jlee1086]

A company acquired a building, paying a portion of the purchase price in cash and issuing a mortgage note payable to the seller for the balance. In a statement of cash flows, what amount is included in financ­ing activities for the transaction?

A. Cash payment

B. Acquisition price

C. Zero

D. Mortgage amount

The correct answer is C. I answered D. I know issuing debt is financing. My question is why mortgage doesn’t fall under debt.

FAR 57 (11/2014), 64 (1/2015), 79 (7/2015)
AUD 68 (2/2015), 79 (11/2015)
REG 79 (1/2016)
BEC 81 (4/2016)

[WaivingMyHands_ALOT]

Mortgage does fall under debt, but you're over complicating the question. This is dealing with a statement of cash flows. So all we really care about is how much cash came in, and how much cash went out. When we issue the debt there is NO cash outflow. When we ultimately pay off that debt and decrease the mortgage liability, there will be a cash flow, but simply issuing the debt does not create cash outflow.

The cash paid up front would be an investing activity.

AUD 99
BEC 96
FAR 94
REG 96

[jlee1086]

Thanks. You got me to think of it in terms of JE's.

Building

Cash

Mortgage.

The reason issuing bonds (also debt) is a cash flow activity is because of this:

Cash

Bonds Payable

FAR 57 (11/2014), 64 (1/2015), 79 (7/2015)
AUD 68 (2/2015), 79 (11/2015)
REG 79 (1/2016)
BEC 81 (4/2016)

[Author]

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