Calculate ACME’s cash flow to shareholders during 2017, making sure to use a div

Question

Calculate ACME’s cash flow to shareholders during 2017, making sure to use a dividend figure in your calculations.  Interpret this cash flow to shareholders number.

Income Statement Balance Sheet Year Ended 12/31/17 12/31/16 12/31/17 Sales $1,200,000 Current Assets $45,000 $50,000 Cost of Goods Sold 750,000 Net Fixed Assets 340,000 430,000 Operating Expenses 200,000 Total Assets $385,000 $480,000 Depreciation 100,000 EBIT 150,000 Accounts Payable $35,000 $15,000 Interest Expense 50,000 Notes Payable 5,000 20,000 EBT 100,000 Long-term Debt 270,000 330,000 Taxes 40,000 Common Stock 5,000 5,000 Net Income $60,000 Retained Earnings 70,000 110,000 Total Liabilities & Equity $385,000 $480,000

Explanation / Answer

Answer:

Net Income (in 2017) = $60,000

Retention (in 2017) = Addition to Retained earnings (in 2017) = Ending balance of Retained Earnings - Beginning balance of Retained Earnings

= $110,000 - $ 70,000 = $40,000

As such dividend paid in 2017 = Net Income - Retention = $60,000 - $40,000 =$20,000

Cash Flow to shareholders = Dividends Paid - (Ending Common Stock - Beginning Common Stock) - (Ending Capital Surplus - Beginning Capital Surplus) + (Ending Treasury Stock - Beginning Treasure Stock)

= $20,000 - ($5,000 - $5,000) - ($0 - $0) + ($0 + $0)

= $20,000

Cash flow to shareholders is the amount company pays to its shareholders. Typical cash flow transactions to shareholders are:

ACME has neither issued nor bought back any shares during 2017. Only cash flow to shareholder is payment of dividends of $20,000. ACME's cash flow to shareholders out of cash generated from business in 2017 is $20,000 which is dividends paid to them.

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