Question

The 2017 balance sheet of Kerber’s Tennis Shop, Inc., showed $950,000 in the common stock account and $6.55 million in the additional paid-in surplus account. The 2018 balance sheet showed $885,000 and $8.3 million in the same two accounts, respectively. If the company paid out $550,000 in cash dividends during 2018, what was the cash flow to stockholders for the year?

Answer 1

Inflows of cash = (Paid-in Surplus in 2018 – Paid-in Surplus in 2017)

                        = (8.3 – 6.55)

                        = 1.75

                        = 1,750,000

Outflows of cash = Common stock in 2017 – Common stock in 2018

                             = 950,000 – 885,000

                             = 65,000

Net equity = Inflows – Outflows

                  = 1,750,000 – 65,000

                  = 1,685,000

CF to Stockholders equity = Dividends – Net equity

                                                = 550,000 – 1,685,000

                                                = - 1,135,000 (Answer)

Note: the CF to stockholders is in negative.