You are the controller for Foxboro Technologies. Your staff has prepared an income statement for the current year and has developed the following additional information by analyzing changes  in

 

 

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LO8                                                                                                          FOXBORO TECHNOLOGIES

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2011

Revenue:

 

Net sales  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$3,400,000
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60,000
Gain on sales of marketable securities  . . . . . . . . . . . . . . . . . . .	       25,000
Total revenue and gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$3,485,000

Costs and expenses:

 

Cost of goods sold  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating expenses (including depreciation	$1,500,000	Â
of $75,000)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	900,000
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	115,000
Loss on sales of plant assets . . . . . . . . . . . . . . . . . . . . . . . . . . .	8,000
Total costs, expenses, and losses . . . . . . . . . . . . . . . . . . . . .	Â	Â	2,550,000
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Â	Â	$   935,000

 

                                                                                                                                                                                                                               

 

Additional Information

1.   Accounts receivable increased by $60,000.

2.   Accrued interest receivable decreased by $5,000.

3.   Inventory decreased by $30,000, and accounts payable to suppliers of merchandise decreased by $22,000.

4.   Short-term prepayments of operating expenses increased by $8,000, and accrued liabilities for operating expenses decreased by $9,000.

5.   The liability for accrued interest payable increased by $4,000 during the year.

6.   The liability for accrued income taxes payable decreased by $10,000 during the year.

7.   The following schedule summarizes the total debit and credit entries during the year in other balance sheet accounts:

 

Â	Debit Entries	Credit Entries
Marketable Securities  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$ 50,000	$ 40,000
Notes Receivable (cash loans made to borrowers) . . . . . . . . . . . . . . .	30,000	27,000
Plant Assets (see paragraph 8)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	350,000	30,000
Notes Payable (short-term borrowing) . . . . . . . . . . . . . . . . . . . . . . . . .	70,000	56,000
Capital Stock  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Â	60,000
Additional Paid-in Capital—Capital Stock  . . . . . . . . . . . . . . . . . . . . . .	Â	100,000
Retained Earnings (see paragraph 9) . . . . . . . . . . . . . . . . . . . . . . . . .	300,000	935,000

 

8.   The $30,000 in credit entries to the Plant Assets account is net of any debits to Accumulated Depreciation when plant assets were retired. Thus the $30,000 in credit entries represents the book value of all plant assets sold or retired during the year.

9.   The $300,000 debit to Retained Earnings represents dividends declared and paid during the year. The $935,000 credit entry represents the net income shown in the income statement.

10.   All investing and financing activities were cash transactions.

11.   Cash and cash equivalents amount to $20,000 at the beginning of the year and to $473,000 at year-end.

Instructions

a.       Prepare a statement of cash flows for the current year. Use the direct method of reporting cash flows from operating activities. Place brackets around dollar amounts representing cash out- flows. Show separately your computations of the following amounts:

1.      Cash received from customers

2.      Interest received

3.      Cash paid to suppliers and employees

4.      Interest paid

5.      Income taxes paid

6.      Proceeds from sales of marketable securities

7.      Proceeds from sales of plant assets

8.      Proceeds from issuing capital stock

b.       Explain why cash paid to suppliers is so much higher than cost of goods sold.

c.       Does the fact that Foxboro’s cash flows from both investing and financing activities are nega- tive indicate that the company is in a weak cash position?