Which item is a financing activity for Whole Pine Inc., which manufactures custom-made wood furniture?

Which item is a financing activity for Whole Pine Inc., which manufactures custom-made wood furniture?

• A. Obtained a new bank loan
• B. Purchased a building
• C. Sold finished goods inventory
• D. Earned net income

Answer: (A)

Financing activities are the cash flows that come from transactions with lenders and owners that affect long‑term liabilities and equity. Obtaining a new bank loan fits this category because it increases cash and creates a new debt liability, changing the company’s financing structure. Buying a building is an investing activity because it uses cash to acquire a long‑term asset. Selling finished goods inventory is part of operating activities, tied to the day‑to‑day operations. Earning net income is an accounting result that influences cash flows through the operating section, but it itself is not a financing activity. Therefore, obtaining a new bank loan is the financing activity.

Financing activities are the cash flows that come from transactions with lenders and owners that affect long‑term liabilities and equity. Obtaining a new bank loan fits this category because it increases cash and creates a new debt liability, changing the company’s financing structure.

Buying a building is an investing activity because it uses cash to acquire a long‑term asset. Selling finished goods inventory is part of operating activities, tied to the day‑to‑day operations. Earning net income is an accounting result that influences cash flows through the operating section, but it itself is not a financing activity.

Therefore, obtaining a new bank loan is the financing activity.