Question

The 2019 balance sheet of Dyrdek’s Skate Shop, Inc., showed $530,000 in the common stock account and $2.3 million in the additional paid-in surplus account. The 2020 balance sheet showed $570,000 and $2.5 million in the same two accounts, respectively. If the company paid out $320,000 in cash dividends during 2020, what was the cash flow to stockholders for the year?

Answer 1

$80,000

Step-by-step explanation:

`The \ expression \ for \ calculating \ cash \ flow \ to \ stockholders \ is:`

`Cashflow \ = \ Dividend \ paid \ during \ the \ year \ - \ change \ in \ t he \ value \ of \ common \ stock \ during \ - \ change \ in \ value \ of \ stock \ in \ the \ previous \ year`
`Here;`

`Change \ in \ value \ of \ Common \ stock \ during \ the \ year \ =`
`\ Value \ of \ Common \ stock \ of \ the \ Curren t \ Year - Value\ of \ Common \ stock \ of \ the \ Previous \ Year`

`Change \ in \ valu e \ of \ Additional \ paid \ in \ surplus \ account \ during \ the \ year =`

`Value \ of \ Additional \ paid \ in \ surplus \ account \ o f \ the \ Current \ Year \ -`
`\ Value \ of \ Additional \ paid \ in \ surplus \ account \ of \ th e \ Previous \ Year`

From the information given:

`Dividend \ Payment \ during \ the \ year` 2020 = $320000

`Value \ of \ stock \ in \ current \ yr`= i.e. 2020 = $570000

`Value \ of \ stock \ in \ previoius \ yr` = i.e. 2019 = $530000

Change = $570000 - $530000 = $40,000

`Value \ of \ Ad ditional \ paid-in \ surplus \ acct \ of \ the \ current \ year` = $2,500,000

`Value \ of \ Ad ditional \ paid-in \ surplus \ acct \ of \ the \ previous \ year` = $2,300,000

Change = $2,500,000 - $2,300,000 = $ 200000

∴

`By \ using \ the \ above \ information \ in \ the \ formula \ for \ calculating \ the \ cash \ flow \ to`

`\ stackholder, \ we \ get:`

= $320000 - $40,000 - $ 200000

= $80,000