A college who is aware of your understanding of financial statements asks for help in analyzing the transactions and events Zett Corporation. The following
data are provided.
ZETT COPORATION
Balance Sheets
December 31 Year 1 and Year 2
Year 1 Year 2
Cash $ 34000 $ 34500
Accounts receivable net 12000 17000
Inventory 16000 14000
Investments (Long term) 6000 __
Fixed assets 80000 93000
Accumulated depreciation (48000) (39000)
Total assets 100000 119500
Account payable 19000 12000
Bonds payable 10000 30000
Common stock 50000 61000
Retained earnings 21000 28000
Treasury stock __ (11500)
Total liabilities and equity $100000 $119500
Additional data for the period January 1 Year 2 Through December 31 Year 2 are:
1. Sales on account $ 70000
2. Purchases on account $40000
3. Depreciation $ 5000
4. Expenses paid in cash $18000( including $4000 of interest and $6000 in taxes)
5. Decrease in inventory $ 2000
6. Sales of fixed assets for $6000 cash; cost $21000 and two-thirds depreciated ( loss or gain is included in income)
7. Purchase of fixed assets for cash$4000
8. Fixed assets are exchanged for bonds payable of $30000
9. Sale of investments for $ 9000 cash
10. Purchase of treasury stock for cash $ 11500
11. Retire bonds payable by issuing comon $65000
12. Collections on accounts receivable $ 65000
13. Sold unissued common stock for cash $ 1000
Required:
a. Prepare a statement of cash flows( indirect method) for the year ended December 31f Year 2.
b. Prepare a side-by-side comparative statement contrasting two bases of reporting:(1) net income and (2) cash flows from operations.
c. Which of the two financial reports is (b) better reflects profitability? Explain.