Avatar Company uses the indirect method to prepare its statement of cash flows. Please refer to the following portion of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | }
\hline&2014 & 2013 & \text { Increase/decrease }\
\hline \text { Common stock } & \$ 30,000 & \$ 2,000 & \$ 28,000 \
\hline \text { Retained earnings } & 113,000 & 74,000 & 39,000 \
\hline \text { Treasury stock } & ( 8,000 & ( 5,000 ) & ( 3,000 ) \
\hline \text { Total equity } & \$ 135,000 & \$ 71,000 & \$ 64,000 \
\hline
\end{array}$$

Note: Net income for the year was $49,000.
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How will dividend payments be shown on the statement of cash flows?
A) Positive $10,000 in the financing section
B) Negative $10,000 in the financing section
C) Positive $10,000 in the investing section
D) Negative $10,000 in the investing section

Question

Avatar Company uses the indirect method to prepare its statement of cash flows. Please refer to the following portion of the comparative balance sheet:
$$\begin{array} { | l | r | r | r | } 
\hline&2014 & 2013 & \text { Increase/decrease }\
\hline \text { Common stock } & \$ 30,000 & \$ 2,000 & \$ 28,000 \
\hline \text { Retained earnings } & 113,000 & 74,000 & 39,000 \
\hline \text { Treasury stock } & ( 8,000 & ( 5,000 ) & ( 3,000 ) \
\hline \text { Total equity } & \$ 135,000 & \$ 71,000 & \$ 64,000 \
\hline
\end{array}$$

Note: Net income for the year was $49,000.
- 
How will dividend payments be shown on the statement of cash flows?
A) Positive $10,000 in the financing section
B) Negative $10,000 in the financing section
C) Positive $10,000 in the investing section
D) Negative $10,000 in the investing section

Quizplus · Accepted Answer

Dividend payments are shown as a cash outflow in the financing section. The decrease in retained earnings ($39,000) compared to net income ($49,000) indicates a dividend payment of $10,000.

Avatar Company Uses the Indirect Method to Prepare Its Statement