The following account balances relate to the stockholders equity accounts of Kerbs Corp. at year-end.
| 2020 | 2019 | |
| Common stock, 10500 and 10,000 shares, respectively for 2020 and 2019. | $170,000 | $140,000 |
| Preferred stock, 5,000 shares | 125,000 | 125,000 |
| Retained earnings | 300,000 | 300,000 |
A small stock dividend was declared and issued in 2020. The market value of the shares was $10,500, cash dividends were $15,000 in both 2020 and 2019. The common stock has no par or stated value.
Instructions
- What was the amount of net income reported by Kerbs Corp. in 2020?
- Determine the amounts of any cash inflows or outflows related to the common stock and dividend accounts in 2020.
- Indicate where each of the cash inflows or outflows identified in (b) would be classified on the statement of cash flows
Solution
a.
Net Income = ($300,000 - $250,000) + $10,500 + $15,000 = $75,500
b.
Cash outflows for dividend = $15,000
Cash inflow for issue of common stock = $170,000 - ($140,000 + $10,500) = $19,500
c.
Both Cash inflow and outflow activities would be classified as financing activities on the statement of cash flows.