CFA Level I · CFA Level I Exam · Analyzing Statements of Cash Flows II
Over a year, a company's retained earnings rose from 500 to 560, and it reported net income of 140 with no other equity changes. Its dividends paid were most likely closest to:
Dividends are about 80. Retained earnings rise by net income less dividends, so 500 plus 140 minus 560 gives 80. The 60 increase in retained earnings is the net retention, not the dividend paid, which would be a financing outflow.
- A60
- B80Correct
- C200
Explanation
Ending RE = beginning RE + net income - dividends, so dividends = 500 + 140 - 560 = 80. Using the 60 change in retained earnings as dividends is an error, and 200 adds the change to net income.
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