Illies Corporation's comparative balance sheet appears below: 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 $4,000. 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 (used in) operating activities, $43,000; net cash provided by (used in) financing activities, $(6,000)
B) net cash provided by (used in) operating activities, $46,000; net cash provided by (used in) financing activities, $(7,000)
C) net cash provided by (used in) operating activities, $43,000; net cash provided by (used in) financing activities, $(7,000)
D) net cash provided by (used in) operating activities, $46,000; net cash provided by (used in) financing activities, $(6,000)

Question

Illies Corporation's comparative balance sheet appears below:  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 $4,000. 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 (used in) operating activities, $43,000; net cash provided by (used in) financing activities, $(6,000) 
B) net cash provided by (used in) operating activities, $46,000; net cash provided by (used in) financing activities, $(7,000) 
C) net cash provided by (used in) operating activities, $43,000; net cash provided by (used in) financing activities, $(7,000) 
D) net cash provided by (used in) operating activities, $46,000; net cash provided by (used in) financing activities, $(6,000)

Quizplus · Accepted Answer

To calculate net cash provided by (used in) operating activities, we need to use the indirect method and adjust net income for any non-cash items and changes in current assets and liabilities. Based on the comparative balance sheet, we can see that accounts receivable decreased by $5,000 and accounts payable increased by $2,000 during the year. This means that $5,000 less was collected from customers (a decrease in operating cash inflow) and $2,000 less was paid to suppliers (an increase in operating cash inflow). Therefore, the adjustment for changes in current assets and liabilities is:

Decrease in accounts receivable: -$5,000
Increase in accounts payable: +$2,000
Net cash provided by operating activities: $3,000 + $5,000 - $2,000 = $6,000

To calculate net cash provided by (used in) financing activities, we need to consider any cash inflows or outflows related to financing activities such as issuing or repurchasing stock or paying dividends. Based on the information provided, the company did not issue any bonds payable or purchase any common stock, but did pay $4,000 in dividends. This means that there was a net cash outflow from financing activities of $4,000. Therefore, the net cash provided by (used in) financing activities is:

Dividends paid: -$4,000
Net cash provided by financing activities: -$4,000

Putting it all together, the net cash provided by (used in) operating activities is $6,000 and the net cash provided by (used in) financing activities is -$4,000, giving a total of $2,000 of net cash provided by (used in) all activities. Therefore, the correct answer is choice C.

Illies Corporation's Comparative Balance Sheet Appears Below: the Company