Question

Mars Chemicals Company uses the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance​ sheet: Mars Chemicals Company Comparative Balance Sheet December​ 31, 2017 and 2016 2016 2015​Increase/(Decrease) Common Stock ​$32,000 ​$2,400 ​$29,600 Retained Earnings ​155,000 ​154,000 ​1,000 Treasury Stock ​(​8,200)​(​5,000) ​(3,200) Total Equity ​$178,800 ​$151,400 ​$27,400 Net Income for the year was​ $57,000.

Which of the following statements is true of​ Taylor's statement of cash flows for​ 2016?

A. The company issued stocks for​ $32,000.
B. The net cash flow from financing activities is​ $178,800.
C. The company declared​ $56,000 as dividends.
D. The company purchased treasury stock for​$8,200.

Answer 1

C. The company declared $56,000 as dividends.

Step-by-step explanation:

C. The company declared $56,000 as dividends: is correct because the retained Earnings increased in 2016 is $1,000, while net income for the year was $57,000; it means that the company declared dividend for $56,000 (= 57,000 – 1,000)

A. The company issued stocks for $32,000: is wrong because the increase in common Stock is $29,600 only.

B. The net cash flow from financing activities is $178,800: is wrong because financing activities are those related debt, equity and dividend; and from all above only dividend of $56,000 declared; common stock issued in year: $29,600; treasury Stock issued in year $3,200; then net cash flow from financing activities is negative $29,600 = (29,600- 3,200-56,000)

D. The company purchased treasury stock for$8,200: is wrong because the increase in Treasury Stock is $3,200 only.