The Sinbad Corporation's 2007 annual report contained the following information: What net effect did these accounts have on the firm's 2007 cash flow?

Question

The Sinbad Corporation's 2007 annual report contained the following information:  What net effect did these accounts have on the firm's 2007 cash flow?

Quizplus · Accepted Answer

The allocation of the $10,000 in profit to retained earnings reduced cash flow by $10,000 (as it did not involve an actual cash transaction). The purchase of a $2,000 fixed asset reduced cash flow by $2,000. Finally, the payment of $20,000 in dividends reduced cash flow by an additional $10,000 (as it represents the actual cash leaving the company). Therefore, the net effect of these transactions was a decrease in cash flow by $12,000 ($10,000 – $2,000 – $10,000 = -$12,000).

The Sinbad Corporation's 2007 Annual Report Contained the Following Information