Does anyone know why Dividends Paid of $25 is counted as CFO, even though it’s stated within the question that it’s considered a financing activity? The question does not state that the company is using GAAP or IFRS. Thank you! This is from the CFAI EOC.
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Retained earning of 2010 = 145 - 120 = 25
Net income of 2010 = retained earning + cash dividend paid = 25 + 10 = 35
Change from A/R = 5
Change from A/P = -7
Change from inventory = 3
Using indirect method we have:
CFO= NI + depreciation - change from A/r - change from inventory + change from A/P = 35 + 25 - 5 -3 - 7 = 45
Dividend paid is not counted as CFO, it is only used to calculate net income and from this figure we can calculate the CFO by using indirect method.
In addition, dividend paid in this case is CFF outflow under US GAAP. To calculate CFO in this question, we have to use indirect method, which only allowed under US GAAP.
Awesome, thank you very much!!!