Question

Comparative statements of financial position for Bayshore Industries, Inc., as of December 31, Year 2 and Year 1, are presented below.

Bayshore Industries, Inc. Statements of Financial Position December 31, Year 2 and Year 1
	Year 2	Year 1	Change
Assets
Current assets
Cash and cash equivalents	$    216,000	$   144,000	$     72,000
Trade receivables - net	3,434,000	1,971,000	1,463,000
Inventory	810,000	216,000	594,000
Prepaid expenses	18,000	--	18,000
Total current assets	4,478,000	2,331,000	2,147,000
Property and equipment	7,780,000	7,740,000	40,000
Minus: accumulated depreciation	576,000	455,000	121,000
Property and equipment - net	7,204,000	7,285,000	(81,000)
Intangible assets, minus accumulated amortization of
$14,400 – Year 2 and $7,200 – Year 1	21,600	28,800	(7,200)
Total assets	$11,703,600	$9,644,800	$2,058,800
	̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿	̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿	̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued expenses	$    872,600	$   396,800	$   475,800
Line of credit	108,000	90,000	18,000
Current portion of noncurrent debt	29,000	27,000	2,000
Total current liabilities	1,009,600	513,800	495,800
Noncurrent debt	3,069,000	3,098,000	(29,000)
Total liabilities	4,078,600	3,611,800	466,800
	̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿	̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿	̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿
Shareholders' equity
Common stock	9,000	9,000	--
Additional paid-in capital	5,400,000	5,400,000	--
Retained earnings	2,216,000	624,000	1,592,000
Total shareholders' equity	7,625,000	6,033,000	1,592,000
	̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿	̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿	̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿
Total liabilities and shareholders' equity	$11,703,600	$9,644,800	$2,058,800
	̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿	̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿	̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿

The statement of income and retained earnings for Bayshore Industries for Year 2, as well as additional information regarding the company's operations for the year, is presented below. Use this information to answer the subsequent questions.

Bayshore Industries, Inc. Statement of Income and Retained Earnings For the year ended December 31, Year 2
	Net sales	$19,800,000
	Cost of sales	9,000,000
	Gross profit on sales	10,800,000
	Operating expenses
	Selling expenses	3,600,000
	General and administrative expenses	4,050,000
	Other operating expenses	393,300
	Total operating expenses	8,043,300
	Operating income	2,756,700
	Other income and expenses
	Gain/loss on property and equipment disposals	18,000
	Interest income	9,000
	Interest expense	(252,000)
	Other income and expenses - net	(225,000)
	Income before income taxes	2,531,700
	Provision for income taxes	759,700
	Net income	1,772,000
	Retained earnings - beginning	624,000
	Dividends paid	180,000
	Retained earnings - ending	$  2,216,000
		̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿ ̿

Additional information on transactions during the year ended December 31, Year 2:

• All accounts receivable relate to customer sales.
• All accounts payable relate to suppliers.
• All fixed assets were acquired for cash.
• A building with original cost of $360,000 and accumulated depreciation of $319,500 was sold for $58,500.
• The company had no new debt in Year 2.
• Interest paid in current year was $250,000.
• Cash paid for income taxes in current year was $700,000.
• No noncash financing or investing transactions occurred during the year.

Bayshore uses the indirect method to present its statement of cash flows for the year ended December 31, Year 2.

Indicate (1) which items require adjustments in the reconciliation of net income to net operating cash flow; (2) the amounts of those adjustments; and (3) whether they are presented as cash flows from operating, investing, or financing activities. The amounts of items not presented in the reconciliation are supplemental disclosures. Enter the appropriate amounts in the designated cells below. Indicate negative adjustments by using a leading minus (-) sign. If no entry is necessary, enter a zero (0).

	Operating activities	Investing activities	Financing activities	Supplemental disclosures
1. Cash paid for income taxes
2. Dividends paid
3. Interest paid
4. Proceeds from/repayment of line of credit
5. Proceeds from plant and equipment disposals
6. Purchases of property and equipment
7. Repayment of noncurrent debt

Answer 1