On January 1, 20X1, a company had a dividends payable balance of $30,000. On Dec
ID: 2528449 • Letter: O
Question
On January 1, 20X1, a company had a dividends payable balance of $30,000. On December 31, 20X1, the credit balance of the dividends payable account was $22,000. Which of the following is true of the treatment of dividends payable in the statement of cash flows?
a. The value of dividends payable has increased by $8,000, indicating an inflow impacting the financing section of the cash flow statement.
b. The value of dividends payable has reduced by $8,000, indicating an inflow impacting the financing section of the cash flow statement.
c. The value of dividends payable has reduced by $8,000, indicating an inflow impacting the operating section of the cash flow statement.
d. The value of dividends payable has reduced by $8,000, indicating an outflow impacting the financing section of the cash flow statement.
Explanation / Answer
On January 1, 20X1, a company had a dividends payable balance of $30,000. On December 31, 20X1, the credit balance of the dividends payable account was $22,000.
This means ( 30000 - 22000 ) $ 8000 has been paid in cash as dividend.
Option D is correct since it is an outflow and dividend paid affects the financing section of the cash flow statement.