Statement Of Cash Flow: Pay Attention To Increase & Decrease

Statement Of Cash Flowhint Pay Attention To Increase Decrease Rece

Statement of Cash Flow Hint: Pay attention to increase, decrease, received and paid Complete the following statement of cash flows using the indirect method: Statement of Stockholders Equity Problem M Corporation had the following beginning balances on 1/1/11: Common Stock: 100,000 APIC: 2,600,000 Retained Earnings: 222,000 During 2011 the company recorded the following transactions: 1/2/11 Issued 10,000 shares of $100 par value cumulative preferred stock at par. 7/1/11 Issued 40,000 shares $1 par value common stock for $42 per share. 10/1/11 Repurchased 16,000 shares of treasury stock for $34 per share. M Corp. uses the cost method to account for treasury shares. 12/1/11 Sold 3,000 shares of treasury stock for $29 per share. 12/30/11 Declared and paid a dividend of $0.20 per share on common stock and a 6% dividend on the preferred stock. M Corporation had net income of $380,000 for 2011. Indicate the impact that the transactions for M Company have on its owner equity accounts. Place the appropriate amounts in the table below. If an amount is negative, show the amount in parentheses. Make sure to start with beginning balances. DateTransactionPreferred StockCommon StockAPIC - Common StockRetained EarningsTreasury Stock 1/1/2011Beginning balance 1/2/2011Issue preferred stock 7/1/2011Issue common stock 10/1/2011Repurchase treasury stock 12/1/2011Sell treasury stock 12/30/2011Declare and pay dividends 12/31/2011Net income 12/31/2011Ending balance

Paper For Above instruction

The statement of stockholders' equity for M Corporation for the year 2011, along with its impact on the cash flow statement using the indirect method, can be comprehensively analyzed by examining each transaction's effect on the company's equity components. Beginning with the initial balances as of January 1, 2011, the corporation's activities throughout the year resulted in modifications to preferred stock, common stock, additional paid-in capital (APIC), retained earnings, and treasury stock, all of which influence the overall financial stability and liquidity position of the company.

The issuance of preferred stock on January 2, 2011, increased preferred stock account balances by the par value of the issued shares, totaling $1,000,000 (10,000 shares × $100). Since preferred stock is cumulative and at par, this transaction also impacts dividends payable and ultimately the dividend expense when declared. The issuance is a financing activity but does not impact cash flow until dividends are paid, which would be reflected in the financing section of the cash flow statement.

On July 1, 2011, the issuance of common stock involves issuing 40,000 shares at $42 per share, with a par value of $1. This transaction results in an increase of $40,000 in common stock and an increase of $1,680,000 in APIC (40,000 shares × ($42 - $1)). It also affects total stockholders' equity by augmenting retained earnings or stockholder investments, depending on the proceeds' allocation and the company's accounting policies.

The repurchase of 16,000 shares of treasury stock on October 1, 2011, at $34 per share, diminishes cash and reduces stockholders' equity because treasury stock is a contra-equity account. The total cost of treasury stock repurchased amounts to $544,000 (16,000 shares × $34), and this activity reflects a financing activity under the cash flow statement.

Subsequently, on December 1, 2011, the sale of 3,000 treasury shares at $29 per share results in a decrease in treasury stock and an inflow of cash totaling $87,000 (3,000 shares × $29), which increases cash flows from financing activities. The sale occurs below the original cost, resulting in a loss reflected in net income, which will, in turn, impact retained earnings.

The dividend declaration and payment on December 30, 2011, include dividends of $0.20 per share on common stock and a 6% dividend on preferred stock. These expenditures reduce retained earnings and are classified as financing outflows in the cash flow statement. The total dividends on common stock amount to $8,000 (40,000 shares × $0.20), and dividends on preferred stock amount to $60,000 (10,000 preferred shares × $100 par × 6%), totaling $68,000 paid.

Net income for the year, recorded as $380,000, increases retained earnings and is a vital component of the operating activities section in the cash flow statement when converting net income to net cash provided by operating activities.

Finally, the accumulated effects of these transactions culminated in the ending balances across all equity accounts as of December 31, 2011. The changes in each account reflect the company's strategic financial decisions, including stock issuance, treasury stock management, dividend payments, and retained earnings growth.

The overall impact of these activities shows an increase in total stockholders' equity driven primarily by net income and stock issuance, offset by treasury stock repurchases and dividends paid. The cash flow statement, prepared using the indirect method, demonstrates how operating income translates into net cash from operating activities, adjusted for changes in working capital, and how financing activities influence liquidity through stock issuance, repurchases, and dividend payments. Together, these elements provide a comprehensive view of M Corporation's financial position and the movement of cash during 2011, aligning with the principles of sound financial reporting and stewardship.

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