Final answer:
Stock dividends do not represent actual cash outflow, and therefore are not reported on the statement of cash flows. They are a reallocation of retained earnings to common stock and paid-in capital.
Step-by-step explanation:
The question involves understanding the impact of stock dividends on the statement of cash flows (indirect method) and whether it should be considered an outflow from financing activities or be reported at all.
Analyzing the given financial data, we can see the retained earnings decreased from $1,449,000 to $1,162,000.
With a net income of $1,011,000 for 2025, the total dividends (cash and stock dividends) paid would amount to the difference of $1,298,000 (the decrease in retained earnings plus net income).
We are informed that a stock dividend increased common stock by $504,000 and paid-in capital by $220,000.
However, stock dividends merely represent a reallocation of retained earnings to common stock and additional paid-in capital; they are not an actual cash outflow and hence are not reported as such on the statement of cash flows.
Thus, the answer to the student's question is that stock dividends are not shown on a statement of cash flows.
Complete Question: The balance in retained earnings at December 31,2024 was $1449000 and at December 31,2025 was $1162000. Net income for 2025 was $1011000. A stock dividend was declared and distributed, increasing common stock by $504000 and paid-in capital by $220000. A cash dividend was also declared and paid. The stock dividend should be reported on the statement of cash flows (indirect method) as an outflow from financing activities of $724000. stock dividends are not shown on a statement of cash flows. an outflow from financing activities of $504000. an outflow from investing activities of $724000.