Question

Howell, Inc. reported net income of $88,000 for the year ended December 31, 2018. Included in net income was a gain on early extinguishment of debt of $120,000 related to bonds payable with a book value of $2,400,000. Each of the following accounts increased during 2018:

Notes receivable---------$90,000
Deferred tax liability-----$20,000
Treasury stock----------$240,000
What is the amount of cash used by financing activities for Jarvis, Inc. for the year ended December 31, 2018?
a. $2,520,000
b. $2,540,000
c. $3,800,000
d. $ 450,000

Answer 1

The amount of cash used by financing activities for Howell, Inc. in 2018 was $260,000.

Step-by-step explanation:

To calculate the amount of cash used by financing activities, we need to look at the changes in long-term liabilities and equity accounts. In this case, the gain on early extinguishment of debt is a noncash item and should be excluded. The increase in the deferred tax liability and treasury stock accounts represents cash used. Therefore, the amount of cash used by financing activities for Howell, Inc. can be calculated as follows:

Cash used by financing activities = Increase in deferred tax liability + Increase in treasury stock

= $20,000 + $240,000 = $260,000

So, the correct answer is d. $260,000.