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 the companys balance sheet accounts.

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 schedule (i.e., appendix table) shown after paragraph 11 summarizes the total debit and credit entries during the year in other balance sheet accounts.

8. In the schedule, the $30,000 in credit entries to the Plant Assets account is net of any debits to Accumulated Depreciation when plant assets were sold or retired. That means the $30,000 in credit entries represents the book value of all plant assets sold or retired during the year (i.e., $30,000 credit to Plant Assets = Cost of the plant assets Accumulated Depreciation).

9. In the schedule, 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. Complete the statement of cash flows.

(3a) Cash paid to suppliers

(3b) Cash paid to employees

b. Which of the following explains why Foxboros cash paid to suppliers is lower than the cost of goods sold?

A. Foxboro has not paid the supplier for the entire amount of inventory purchased in 2015.

B. Foxboro paid off some existing liabilities to its suppliers.

C. The cost of inventory sold is lower than the cost of inventory purchased in 2015.

D. Foxboro sold part of the inventory bought in earlier periods.

FOXBORO TECHNOLOGIES INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2011 Revenue: Net sales Interest income Gain on sales of marketable securities Total revenue and gains Costs and expenses: Cost of goods sold Operating expenses (including depreciation of $75,000 ) Interest expense Income tax expense Loss on sales of plant assets Total costs, expenses, and losses Net income $3,400,00060,00025,000$3,485,000 $1,500,000 900,000 27,000 115,000 8,000 $935,0002,550,000