Taylor Company follows the indirect method to prepare its statement of cash flow

Question

Taylor Company follows the indirect method to prepare its statement of cash flows. Refer to the following portion of the comparative balance sheet:

Taylor company Comparative Balance Sheet December 31, 2014 and 2013

                                                   2014         2013    Increase/decrease

Common Stock                      $30,000     $2,000         $28,000

Retained Earnings                154,000      89,000           65,000

Treasury Stock                       (8,000)      (5,000)         (3,000)

Total Equity                        $176,000     $86,000        $90,000

Note: Net Income for the year was $89,000. Based on the above information, calculate the dividends declared during the year 2014. A) $3,000 B) $89,000 C) $65,000 D) $24,000

Explanation / Answer

Retained Earnings in 2013 = $89000

Net Income for the year was $89,000 so Retained earnings in 2014 should be $89000 + $89000 = $178000.

But Retained Earnings as per Comparative Balance Sheet December 31, 2014 are $154000.

Thus dividends declared during the year 2014 is $178000 – $154000 = $24000

Answer is option (D) $24000.

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