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 $5,000 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, $33,000; net cash provided by (used in) financing activities, $(1,000)
B) net cash provided by (used in) operating activities, $35,000; net cash provided by (used in) financing activities, $(7,000)
C) net cash provided by (used in) operating activities, $33,000; net cash provided by (used in) financing activities, $(7,000)
D) net cash provided by (used in) operating activities, $35,000; net cash provided by (used in) financing activities, $(1,000)

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 $5,000 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, $33,000; net cash provided by (used in) financing activities, $(1,000) 
B) net cash provided by (used in) operating activities, $35,000; net cash provided by (used in) financing activities, $(7,000) 
C) net cash provided by (used in) operating activities, $33,000; net cash provided by (used in) financing activities, $(7,000) 
D) net cash provided by (used in) operating activities, $35,000; net cash provided by (used in) financing activities, $(1,000)

Quizplus · Accepted Answer

To calculate the net cash provided by operating activities, we need to use the indirect method and adjust the net income for any non-cash transactions and changes in current assets and liabilities. We don't have enough information in the question to do that calculation.

However, we can use the information given to calculate the net cash provided by financing activities:

Net cash provided by financing activities = Cash dividends paid = $4,000

We also know that the company did not issue any bonds payable or purchase any of its own common stock, so there were no other financing activities during the year.

Now, using the statement of cash flows equation:

Net cash provided by operating activities + Net cash provided by investing activities + Net cash provided by financing activities = Net increase in cash

We know that there was a $3,000 increase in cash during the year (from the change in the cash balance on the balance sheet). We also know that the company did not make any investing activities, so:

Net cash provided by operating activities + Net cash provided by financing activities = $3,000

Substituting the values we calculated:

Net cash provided by operating activities + $4,000 = $3,000

Net cash provided by operating activities = -$1,000

This means that the company used $1,000 in operating activities during the year.

Therefore, the correct answer is C.

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