Question

Problem 12-2A

The following account balances relate to the stockholders’ equity accounts of Kingbird, Inc. at year-end.

		2017		2016
Common stock, 10,680 and 10,180 shares,
respectively, for 2017 and 2016		$147,090		$126,290
Preferred stock, 4,850 shares		121,250		121,250
Retained earnings		296,430		286,200

A small stock dividend was declared and issued in 2017. The market price of the shares was $9,440. Cash dividends were $19,890 in both 2017 and 2016. The common stock has no par or stated value.

a) What was the amount of net income reported by Kingbird, Inc. in 2017?

b) Determine the amounts of any cash inflows or outflows related to the common stock and dividend accounts in 2017.

c) Indicate where each of the cash inflows or outflows identified in (b) would be classified on the statement of cash flows.

Answer 1

a)Net Income = Retained earning at 2017 +cash Dividend of 2017+stock dividend - RE at 2016

          = 296430 + 19890+ 9440 - 286200

         = 39560

b)Cash inflow from common stock = Ending common stock - Beginning common stock - market value of stock dividend

           = 147090-126290-9440

           = 11360

stock dividend does not result in any cash flow.

cash outflow from dividend account =-19890

c)cash inflow from sale of common stock will be classified as cash flow from financing activity under statement of cash flow . since stock dividend does not result in cash flow ,it will not be reported.

cash dividend will be reported as cash outflow under financing activity of statement of cash flow.