Today’s question: REG

Under the Internal Revenue Code sections pertaining to partnerships, guaranteed payments are payments to partners for _____
 

A)   payments of principal on secured notes honored at maturity.

B)   timely payments of periodic interest on bona fide loans that are not treated as partners' capital.

C)   services or the use of capital without regard to partnership income.

D)   sales of partners' assets to the partnership at guaranteed amounts regardless of market values.

Correct Answer: C

Explanation: By definition.

Today’s question: FAR

In a statement of cash flows, receipts from sales of property, plant, and equipment and other productive assets should generally be classified as cash inflows from:

A)   Operating activities

B)   Financing activities

C)   Investing activities

D)   Selling activities

Correct Answer: C

Explanation: Generally, investing activities relate to the acquisition and disposal of assets other than those directly related to the enterprise's operations (such as trade receivables, inventory and prepaid expenses).

Operating activities generally involve producing and delivering goods and/or providing services to customers. Sale of productive assets would not constitute sales to customers.
Financing activities relate to obtaining and settling equity and debt financing other than that directly related to the enterprise's operations (such as trade payables and accrued expenses) and providing a return on investment to owners (dividends). Interest paid to creditors (net of amounts capitalized) is classified as an operating activities cash flow. Selling activities is incorrect, as it is not a classification of cash flow for the statement of cash flows.