Question

Illies Corporation's comparative balance sheet appears below:

Ending Balance Beginning Balance
Assets:
Current assets:
Cash and cash equivalents $ 55,000 $ 48,000
Accounts receivable 34,000 37,500
Inventory 82,000 85,500
Total current assets 171,000 171,000
Property, plant, and equipment 403,000 369,000
Less accumulated depreciation 186,000 147,000
Net property, plant, and equipment 217,000 222,000
Total assets $ 388,000 $ 393,000
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable $ 33,000 $ 35,500
Accrued liabilities 69,000 75,500
Income taxes payable 66,000 57,000
Total current liabilities 168,000 168,000
Bonds payable 97,000 108,500
Total liabilities 265,000 276,500
Stockholders’ equity:
Common stock 45,500 37,000
Retained earnings 77,500 79,500
Total stockholders’ equity 123,000 116,500
Total liabilities and stockholders' equity$ 388,000 $ 393,000

The company did not dispose of any property, plant, and equipment during the year. Its net income for the year was $3,000 and its cash dividends were $5,000. The company did not issue any bonds payable or purchase any of its own common stock during the year. Its net cash provided by (used in) operating activities and net cash provided by (used in) financing activities are:

A. net cash provided by operating activities, $49,000; net cash used in financing activities, $(8,500)
B. net cash provided by operating activities, $52,500; net cash used in financing activities, $(8,000)
C. net cash provided by operating activities, $49,000; net cash used in financing activities, $(8,000)
D. net cash provided by operating activities, $52,500; net cash used in financing activities, $(8,500)

Answer 1

The net cash provided by operating activities for Illies Corporation is $9,000, factoring in net income, dividends, and changes in working capital. Net cash used in financing activities is $11,500, derived from the decrease in bonds payable. The provided answer options do not correctly reflect these calculations.

Step-by-step explanation:

The task involves determining the net cash provided by operating activities and the net cash used in financing activities for Illies Corporation. To ascertain the net cash provided by operating activities, we begin by analyzing the changes in working capital on the balance sheet. Since the net income for the year was $3,000 but cash increased by $7,000 ($55,000 ending balance - $48,000 beginning balance) and dividends of $5,000 were paid, operating activities must have provided $9,000 ($3,000 net income + $5,000 cash dividends + $1,000 net decrease in accounts receivable + $3,500 net decrease in inventory - $3,000 decrease in accounts payable - $6,500 net decrease in accrued liabilities + $9,000 increase in income taxes payable).

For financing activities, the only change was in bonds payable, which decreased by $11,500, and since no stock was issued or repurchased, this decrease represents the net cash used in financing activities. There are no changes indicated in the equity other than due to retained earnings, so we conclude that the net cash used in financing activities is $11,500.

However, we must account for the changes in stockholders' equity due to retained earnings. With a net income of $3,000 and dividends of $5,000, retained earnings decreased by $2,000. This decrease, alongside an increase in common stock, contributes to the net change in stockholders' equity. Therefore, net cash provided by operating activities remains at $9,000, and net cash used in financing activities is the change in bonds payable of $11,500, adjusted for the dividends paid, which are included in operating activities. Ultimately, we find the correct answer to not be listed among the provided options, suggesting a revision in the choices or a possible miscalculation in the statement of the problem.