The 2010 statement of cash flows of Dickens Corporation shows $500,000 cash paid for dividends. If dividends in Dickens' statement of retained earnings are reported at $550,000 then:
A) Dickens' dividends payable account must amount to $50,000 at the end of 2010.
B) Dickens' Cash account must have increased by $50,000 in 2010.
C) Dickens' dividends payable account must have increased by $50,000 in 2010.
D) Dickens' dividends payable account must have decreased by $50,000 in 2010.

Question

Quizplus · Accepted Answer

The dividends paid during the year are reported on the cash flow statement, while the dividends declared during the year are reported on the retained earnings statement. The dividends payable account represents the dividends declared by the company for which payment has not yet been made. Therefore, if the dividends declared are greater than the dividends paid, the dividends payable account must have increased. In this case, the difference between the dividends declared ($550,000) and the dividends paid ($500,000) is $50,000, which means the dividends payable account must have increased by $50,000 during the year.

The 2010 Statement of Cash Flows of Dickens Corporation Shows