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

Answer:

$80,000

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