Question

Pay cash dividends to stockholders for $60,000 1. How would this impact net income? state increase...

Pay cash dividends to stockholders for $60,000

1. How would this impact net income? state increase or decrease and amount or NA (example: increase 10,000)

2. How would this impact the cash (bank) account? state increase or decrease and amount or NA  (example: decrease 10,000)

3. What type of cash flow activity would it be on the cash flow statement? put OA, IA, FA, or NA  (example: OA)

  • OA= operating activity
  • IA= investing activity
  • FA=financing activity
  • NA= not applicable
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Homework Answers

Answer #1

Solution:

The entry would be:

Cash Dividends $ 60,000
To Bank account $ 60,000

Answer 1: NA

Explanation:

Cash dividend does not impact the Net Income of an organisation because cash dividend is paid out of Net Income.

Answer 2: Decrease $ 60,000

Explanation:

Paying cash dividend to stockholders reduces bank account, and so bank will be reduced by $ 60,000.

Answer 3: FA=financing activity

Explanation:

Financing activities are those activities that are related to procurement or acquisition of funds.

These are those activities that are related to debt and equity.

Therefore, payment of cash dividend is related to Financing Activity.

In case of any doubt or clarification, feel free to come back via comments.

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