Sources and Uses of Cash Consider the following balance sheets for the Philippe
Corporation. Calculate the changes in the various accounts and, where applicable, identify the change as a source or use of cash. What were the major sources and uses of cash? Did the company become more or less liquid during the year? What happened to cash during the year?

Question

PHILIPPE CORPORATION 2017 and 2018 Balance Sheets ($ in millions)
	2017	2018
Assets
Current assets
Cash	$210	$215
Accounts receivable	355	310
Inventory	[latex]\underline{507}[/latex]	[latex]\underline{328}[/latex]
Total	[latex]\underline{\$1,072}[/latex]	[latex]\underline{\$ ext{ }853}[/latex]
Fixed assets
Net plant and equipment	[latex]\underline{\$6,085}[/latex]	[latex]\underline{\$6,527}[/latex]
Total assets	[latex]\underline{\underline{\$7,157}}[/latex]	[latex]\underline{\underline{\$7,380}}[/latex]
Liabilities and Owners’ Equity
Current liabilities
Accounts payable	$207	$298
Notes payable	[latex]\underline{1,715}[/latex]	[latex]\underline{1,427}[/latex]
Total	[latex]\underline{\$1,922}[/latex]	[latex]\underline{\$1,725}[/latex]
Long-term debt	[latex]\underline{\$1,987}[/latex]	[latex]\underline{\$2,308}[/latex]
Owners’ equity
Common stock and paid-in surplus	$1,000	$1,000
Retained earnings	[latex]\underline{2,248}[/latex]	[latex]\underline{2,347}[/latex]
Total	[latex]\underline{\$3,248}[/latex]	[latex]\underline{\$3,347}[/latex]
Total liabilities and owners’ equity	[latex]\underline{\underline{\$7,157}}[/latex]	[latex]\underline{\underline{\$7,380}}[/latex]

Accepted Answer

We’ve filled in the answers in the following table. Remember, increases in assets and decreases in liabilities indicate that we spent some cash. Decreases in assets and increases in liabilities are ways of getting cash.

Philippe used its cash primarily to purchase fixed assets and to pay off short-term debt. The major sources of cash to do this were additional long-term borrowing, reductions in current assets, and additions to retained earnings.

PHILIPPE CORPORATION 2017 and 2018 Balance Sheets ($ in millions)
	2017	2018	Change	Source or Use of Cash
Assets
Current assets
Cash	$210	$215	[latex]+\$[/latex] 5
Accounts receivable	355	310	- 45	Source
Inventory	[latex]\underline{507}[/latex]	[latex]\underline{328}[/latex]	[latex]\underline{- 179}[/latex]	Source
Total	[latex]\underline{\underline{\$1,072}}[/latex]	[latex]\underline{\underline{\$ ext{ }853}}[/latex]	[latex]\underline{\underline{-\$219}}[/latex]
Fixed assets
Net plant and equipment	[latex]\underline{\$6,085}[/latex]	[latex]\underline{\$6,527}[/latex]	[latex]\underline{+\$442}[/latex]	Use
Total assets	[latex]\underline{\underline{\$7,157}}[/latex]	[latex]\underline{\underline{\$7,380}}[/latex]	[latex]\underline{\underline{+\$223}}[/latex]
Liabilities and Owners’ Equity
Current liabilities
Accounts payable	$207	$298	[latex]+\$[/latex] 91	Source
Notes payable	[latex]\underline{1,715}[/latex]	[latex]\underline{1,427}[/latex]	[latex]\underline{-288}[/latex]	Use
Total	[latex]\underline{\$1,922}[/latex]	[latex]\underline{\$1,725}[/latex]	[latex]\underline{-\$197}[/latex]
Long-term debt	[latex]\underline{\underline{\$1,987}}[/latex]	[latex]\underline{\underline{\$2,308}}[/latex]	[latex]\underline{\underline{+\$321}}[/latex]	Source
Owners’ equity
Common stock and paid-in surplus	$1,000	$1,000	[latex]+\$[/latex] 0	[latex]-[/latex]
Retained earnings	[latex]\underline{2,248}[/latex]	[latex]\underline{2,347}[/latex]	[latex]\underline{+ ext{ }99}[/latex]	Source
Total	[latex]\underline{\$3,248}[/latex]	[latex]\underline{\$3,347}[/latex]	[latex]\underline{+\$ ext{ }99}[/latex]
Total liabilities and owners’ equity	[latex]\underline{\underline{\$7,157}}[/latex]	[latex]\underline{\underline{\$7,380}}[/latex]	[latex]\underline{\underline{+\$223}}[/latex]

The current ratio went from $1,072/$1,922 = .56 to $853/$1,725 = .49, so the firm’s liquidity appears to have declined somewhat. Overall, however, the amount of cash on hand increased by $5.

Question 3.S-TP.1: Sources and Uses of Cash Consider the following balance shee...

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