Statement of cash flows and current ratios
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1. Ace Inc. declared and distributed a 10% stock dividend during the year. Explain how, if at all, you think this transaction should be reported on a statement of cash flows
2. A company has a current ratio of 1.25 but an acid-test (or quick) ratio of only 0.65. How can this difference in the two ratios be explained? What concerns might you have about this company
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1. Ace Inc. declared and distributed a 10% stock dividend during the year. Explain how, if at all, you think this transaction should be reported on a statement of cash flows
STOCK DIVIDENDS: This involves the issuance of additional shares of stock to existing shareholders on a proportional basis. Hence there is no involvement of cash in case of stock dividends. For a typical distribution of 10% stock dividend the entry is:
Retained earnings Dr.
Common stock ...
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