Answered

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Which of the following statements is more likely if cash and marketable securities increased by $5,000 during a period in which cash provided by operations increases by $1,000 and cash used by investments decreases by $500?

a. Cash provided by financing increases by $6,500.
b. Cash used by financing decreases by $1,000.
c. Debt increases by more than cash dividends paid.
d. Debt is reduced by more than cash dividends paid.

Sagot :

Answer: c. Debt increases by more than cash dividends paid

Explanation:

In this case, the net increase in the cash from financing activities will be:

= $5000 - $1000 + $500

= $4500

Option A is incorrect as Cash provided by financing doesn't increase by $6,500 but rather $4500.

Option B is incorrect because the cash used by financing doesn't decreases by $1,000 but rather increase.

Option D us incorrect as well.

The correct option is C "Debt increases by more than cash dividends paid".

Answer:

c. Debt increases by more than cash dividends paid.

Explanation:

The cash flow statement equation is given as follows:

Cash and marketable securities = Cash flows from operations + Cash flows from investments + Cash flows from financing .................. (1)

Where, from the question, we have:

Cash flows from operations = Cash provided by operations increases = $1,000

Cash flows from investments = Cash used by investments decreases = -$500

Cash flows from financing = ?

Cash and marketable securities increased = $5,000

Substituting all the values into equation (1) and solve for Cash flows from financing, we have:

$5,000 = $1,000 - $500 + Cash flows from financing

Cash flows from financing = $5,000 - $1,000 + $500

Cash flows from financing = $4,500

Since the $4,500 Cash flows from financing is positive, this implies that cash provided by financing increases by $4,500. From the option in the question, this can only happen when debt increases by more than cash dividends paid. The other options are clearly not correct.

Therefore, the correct option is c. Debt increases by more than cash dividends paid.

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