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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.

  11. #11
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    Quote Originally Posted by Lneal
    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.
    Well, this makes me think the dividends were declared but not paid. There would be no change to cash. So, I 'think' the amount you want to enter is 0.00. Does your statement 'work' if you enter 0.00?

  12. #12
    MTS
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    Quote Originally Posted by Lneal
    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.
    OK.
    And I'm still saying that the Cash Dividends DECLARED entries net to ZERO, with no effect on actual cash balances.

    If the board declared a dividend on Dec 31st 2013 that will be payable on Jan 15th 2014, it's got nada effect on cash flow for 2013.

    The PAYMENT of a cash dividend, however, will, obviously, be reflected on a Statement of Cash Flow. In 2014.

  13. #13
    Moderator sharon b's Avatar
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    I think it is just thrown out there to confuse you- since it is only DECLARED and NOT paid it has no effect on the cash

  14. #14
    Moderator QuiltnNan's Avatar
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    wow, this is all very confusing to me :)

  15. #15
    Super Member Lneal's Avatar
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    So declared dividends are not paid?That helps to know.

  16. #16
    Super Member 0tis's Avatar
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    I also despised Statements of Cash Flows - they were the most difficult of statements for me during my Accounting days. I preferred income tax returns....

  17. #17
    MTS
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    Quote Originally Posted by Lneal
    So declared dividends are not paid?That helps to know.
    I'm sure if you look in your textbook, there will be a more detailed explanation of the process.

    In a rinky-dink (no offense intended) small business, the owner can declare a dividend or payout and cut the check the same day.

    Doesn't work that way in real life in a Fortune 100 corporation (or any publicly traded company).

    For instance:
    the board declares the dividend on 12/20/11
    for shareholders of record on 12/31/11
    payable on 01/07/12

    The Ex-Dividend date would 12/29/11.
    This means if you buy the stock after this date, you won't get the dividend.
    If you sell after this date, say on 12/30/11, but before the date of record, you'd still get the dividend.
    The ExDiv date is always 2(?) days prior to the record date.

    (btw, there are many, many funds and investors that play this game. Yeah, the tax rate is higher if they're buying and selling without holding the stock for such a short time, but sometimes it's worth it.)

    Dividend checks will be mailed on 1/7/12.
    The corp. needs time after the date of record to make sure all accounts are settled so it knows who owns how many shares of its stock that will eligible for a dividend payment.

    Effect on cash flow for 2011 - zip.

  18. #18
    Super Member Lneal's Avatar
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    Thanks for all your help!!

    I did it!! My accounting problem came out right!! The declared dividend had me confused but now I understand.

  19. #19
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    I haven't thought about this stuff for 11 years. I'm a bookkeeper now and have asked our CPA for a cash flow statement but they won't do it. They don't like them either. We need a different CPA. I might be able to do one if I tried, but it would take some brushup.

    But the important thing is that you only consider actual cash coming in and going out.

  20. #20
    MTS
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    Quote Originally Posted by Lneal
    Thanks for all your help!!

    I did it!! My accounting problem came out right!! The declared dividend had me confused but now I understand.
    I'm glad.:thumbup:
    I just realized you're same person who asked the Excel questions. ;-)

  21. #21
    MTS
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    Quote Originally Posted by Barb44
    and have asked our CPA for a cash flow statement but they won't do it. They don't like them either.
    "they won't do it"
    Freaking unbelievable.
    :shock: :roll: :shock:

  22. #22
    Super Member Lneal's Avatar
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    I sure am and happy to say that I passed my Excel class with an A!! :D

    It takes me longer (it seems to Me) to understand things but I work hard at it and I feel rewarded when I finally get it. :thumbup: :thumbup:

  23. #23
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    this is why I didn't become an accountant....

    Good luck!

  24. #24
    MTS
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    Quote Originally Posted by Lneal
    I sure am and happy to say that I passed my Excel class with an A!! :D

    It takes me longer (it seems to Me) to understand things but I work hard at it and I feel rewarded when I finally get it. :thumbup: :thumbup:
    :thumbup: :thumbup: Congratulations on passing the Excel class.

    And if you've never had any exposure to Excel and/or accounting before, there is a learning curve.
    For anyone.
    Don't knock yourself because of it.

    What's the next course (so I can prepare)? :mrgreen:

  25. #25
    Super Member Lneal's Avatar
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    MTS, will you be available to help?

    After accounting I its on to Accounting II. That takes me to the end of January 2012.

    I graduate in April 2012 and I know I have a business law course coming up in the spring!! :thumbup: :thumbup:

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