The beginning balance in Retained Earnings is $20,000 and the ending balance is $50,000. Net Income is $70,000. Which of the following will be found in the Statement of Cash Flows prepared using the Indirect Method?
Payment of dividends of $40,000 in Financing Activities section
Payment of dividends of $40,000 in Operating Activities section
Correct answer. The Beginning Balance (B.B.) of RE + Net Income/-Net Loss – Dividends = the Ending Balance (E.B.) The dividends paid amounts to $40,000 (20,000+70,000-50,000). Under U.S. GAAP, payment of dividends is a Financing Activity. Under the indirect method in the Operating Activities section, Net Income of $70,000 is listed at the top.
