When ABC Corp acquires a 5% stake in VG Company using the Cost Method, where will this cash flow be reflected in the Statement of Cash Flows?

When ABC Corp acquires a 5% stake in VG Company using the Cost Method, the cash flow associated with this acquisition will be reflected in the Statement of Cash Flows under Investing Activities. This is because investments in equity securities that do not grant control or significant influence are categorized as investment activities.

Investing Activities encompass cash transactions for the purchase and sale of physical and financial investments, including stocks and bonds. Since the acquisition of the stake in VG Company represents a long-term investment, it is classified as an outflow of cash within this section. The focus on Investing Activities primarily pertains to transactions that involve the acquisition and disposal of long-term assets, which is precisely what ABC Corp is engaging in by purchasing the stake in VG Company.

This classification also helps users of the financial statements understand how much cash a company is utilizing for investment purposes, which can be critical for assessing overall financial health and future growth potential.