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The beginning balance in Retained Earnings is $20,000 and the ending balance is $50,000. The dividends paid is $40,000. 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.) Net Income amounts to $70,000 (50,000+40,000-20,000). 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.

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