Question

The 2019 balance sheet of Dyrdek’s Skate Shop, Inc., showed $590,000 in the common stock account and $4.8 million in the additional paid-in surplus account. The 2020 balance sheet showed $630,000 and $5.3 million in the same two accounts, respectively. If the company paid out $600,000 in cash dividends during 2020, what was the cash flow to stockholders for the year? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Cash Flow to Stockholders: _______

Answer 1

Solution:

The formula for calculating the Cash Flow to Stockholders for the year is

= Dividend Payment during the year – Change in value of Common stock during the year – Change in value of Additional paid in surplus account during the year

Where,

Change in value of Common stock during the year = Value of Common stock of the Current Year – Value of Common stock of the Previous Year

Change in value of Additional paid in surplus account during the year = Value of Additional paid in surplus account of the Current Year – Value of Additional paid in surplus account of the Previous Year

As per the Information given in the question we have

Dividend Payment during the year 2020 = $ 600,000

Value of Common stock of the Current Year i.e., 2020 = $ 630,000

Value of Common stock of the Previous Year i.e., 2019 = $ 590,000

Thus Change in Common stock during the Year = $ 630,000 - $ 590,000 = $ 40,000

Value of Additional paid in surplus account of the Current Year = $ 5,300,000

Value of Additional paid in surplus account of the Previous Year = $ 4,800,000

                                                                                                                                                                            

Thus Change in Additional paid in surplus account = $ 5,300,000 - $ 4,800,000 = $ 500,000

Thus applying the above information in the formula for calculating the Cash Flow to Stockholders is

= $ 600,000 - $ 40,000 - $ 500,000

= $ 60,000

Thus the Cash flow to stockholders for the year 2020 = $ 60,000