The following is an extract from the 2017 and 2018 financial statements of Garmen Ltd. All figures are in thousands (£).

a. Garmen’s statement of cash flows for 2018 shows £0 cash inflow resulting from changes in stockholders’ equity, yet the balance sheet shows that stockholders’ equity increased by £125,000 in 2019. Can you explain this apparent contradiction?

b. Will the statement of cash flows for Garmen Ltd. show £0 cash inflow resulting from the change in stockholders’ equity every year, or are other values possible? Explain the possible situations when the cash flows from the change in stockholders’ equity could be positive or negative in some future year.

Transcribed Image Text:

Account Preferred stock Common stock par Share premium Retained earnings Total stockholders' equity 2017 300 600 800 450 2,150 2018 300 600 800 575 2,275