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Thread: Who Knows Accounting?

  1. #1
    Super Member Lneal's Avatar
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    I am trying to use the indirect method on a statement of cash flows and I don't understand what to do with a cash dividend declared for $112,320. I am in the financing activities and the question asks me to enter less cash paid for dividends and I am not understanding this at all.

    I am in accounting I and struggling with this problem. Can anyone help me?

    Thanks :D

  2. #2
    Super Member May in Jersey's Avatar
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    Sorry I'm no help, last time I worked in Accounting was about 40 years ago and so much has changed. Just thought I'd add a reply to keep your question on top of the postings.

  3. #3
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    I always disliked the SOCF and did everything in my power not to have to do them! I'll poke around online and see if I can refresh my memory. Might take a bit, as I have grandkids today.

  4. #4
    MTS
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    Quote Originally Posted by Lneal
    I am trying to use the indirect method on a statement of cash flows and I don't understand what to do with a cash dividend declared for $112,320. I am in the financing activities and the question asks me to enter less cash paid for dividends and I am not understanding this at all.
    A declared dividend is not yet a paid or distributed dividend until the cash goes out the door.
    Did it?

    What would the JE have been when the dividend was declared?

    Dr. R/E (or a sub account)
    Cr. Dividends Payable

    How did you account for the Dividend Payable credit in Curr Liab?

  5. #5
    Super Member RenaB's Avatar
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    Not sure I am understanding the question but if someone is paid a cash dividend, then the JE would be to credit cash and debit the dividends. In return it will show on the balance sheet depreciating the retained earnings of a company because a portion of the profits have been paid out.

    Hope I am understanding the question right, good luck.

  6. #6
    MTS
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    Quote Originally Posted by RenaB
    Not sure I am understanding the question but if someone is paid a cash dividend, then the JE would be to credit cash and debit the dividends. In return it will show on the balance sheet depreciating the retained earnings of a company because a portion of the profits have been paid out.

    Hope I am understanding the question right, good luck.
    Once again, DECLARED is not PAID.

  7. #7
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    OK, I'm assuming the dividend was paid. I think you just enter it as a negative number. For a very simplified example, suppose your net income is $1,000, and it's all cash related - no depreciation, or other non cash items. Also, assume you started the year with $100 cash, and paid a cash dividend of $50.

    Net Income = 1,000

    Financing Activities
    Cash Dividend paid = -50.00

    Change in Cash for period = 950.00

    Cash at beginning of year = 100.00
    Cash at end of year = 1050.

    Maybe????

  8. #8
    Super Member RenaB's Avatar
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    Quote Originally Posted by MTS
    Quote Originally Posted by RenaB
    Not sure I am understanding the question but if someone is paid a cash dividend, then the JE would be to credit cash and debit the dividends. In return it will show on the balance sheet depreciating the retained earnings of a company because a portion of the profits have been paid out.

    Hope I am understanding the question right, good luck.
    Once again, DECLARED is not PAID.
    I agree, but then it says later on cash paid. It is worded very funky. This is why I let them know that I am not sure I am reading the question correctly.

  9. #9
    MTS
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    Quote Originally Posted by RenaB
    Quote Originally Posted by MTS
    Once again, DECLARED is not PAID.
    I agree, but then it says later on cash paid. It is worded very funky. This is why I let them know that I am not sure I am reading the question correctly.
    I agree back.
    And I think the funky wording is intentional. ;-)
    iow, you would put in the amount paid out in cash for dividends.
    If there were any. ;-)

    At least that's the way I'm reading it.

    A Declared Dividend would have no effect on cash flow as no cash went out the door.
    Yet.

    If you didn't adjust for the Dividends Payable on your cash flow statement, then you wouldn't have to for the hit to Dividends Declared or R/E acct (depending on how it was booked in the R/E section).

  10. #10
    Super Member Lneal's Avatar
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    The problem says ; An examination of the income statement and the accounting records revealed the following additional information applicable to 2013:



    On the statement of cash flows indirect method these numbers are entered for the liabilities and stockholders equity. Dec 31, 2013 $28,080 .......... Dec 31 2012 $21,600

    Then I am given Cash dividends declared, $112,320 as the additional information.

    When doing my cash flows from financial activities I don't know how to enter the amount for less cash paid for dividends.



    I hope I am making sense and sorry if I am not. This is so new to me.

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