A colleague who is aware of your understanding of financial statements asks for help in analyzing the transactions and events of Zett Corporation. The following data are provided: PROBLEM 7-3 Preparing and Analyzing the Statement of Cash Flowes (Indirect) ZETT CORPORATION Balance Sheets December 31, Year 1 and Year 2 Year 1 Cash..... $ 34,000 Accounts receivable, net 12,000 Inventory..... 16,000 Investments (long term). 6,000 Fixed assets ...... 80,000 Accumulated depreciation... (48,000) Total assets.. $100,000 Year 2 $ 34,500 17,000 14,000 93,000 (39,000) $119,500 (continued) Additional Information: 1. Purchases in Year 1 are $450,000 2. In Year 2, management expects 15% sales growth and a 10% increase in all expenses except for depreciation, which increases by 5%. 3. Inventory turnover for Year 1 is 5.0, and management expects an inventory turnover ratio of 6.0 for Year 2. 4. A receivable collection period of 90 days, based on year-end accounts receivable, is planned for Year 2. 5. Year 2 income taxes, at the same rate on pretax income in Year 1, will be paid in cash. 6. Notes payable of $20,000 will be paid in Year 2. 7. Long-term debt of $25,000 will be repaid in Year 2. 8. Kopp desires a minimum cash balance of $20,000 in Year 2. 9. The ratio of accounts payable to purchases will remain the same in Year 2 as in Year 1. Required: a. Prepare a statement of forecasted cash inflows and outflows (what-if analysis) for the year ending Decem- ber 31, Year 2 b. Will Kopp Corporation have to borrow money in Year 2? CHECK Forecasted cash need, $35,898 A colleague who is aware of your understanding of financial statements asks for help in analyzing the transactions and events of Zett Corporation. The following data are provided: PROBLEM 7-3 Preparing and Analyzing the Statement of Cash Flowes (Indirect) ZETT CORPORATION Balance Sheets December 31, Year 1 and Year 2 Year 1 Cash..... $ 34,000 Accounts receivable, net 12,000 Inventory..... 16,000 Investments (long term). 6,000 Fixed assets ...... 80,000 Accumulated depreciation... (48,000) Total assets.. $100,000 Year 2 $ 34,500 17,000 14,000 93,000 (39,000) $119,500 (continued) Additional Information: 1. Purchases in Year 1 are $450,000 2. In Year 2, management expects 15% sales growth and a 10% increase in all expenses except for depreciation, which increases by 5%. 3. Inventory turnover for Year 1 is 5.0, and management expects an inventory turnover ratio of 6.0 for Year 2. 4. A receivable collection period of 90 days, based on year-end accounts receivable, is planned for Year 2. 5. Year 2 income taxes, at the same rate on pretax income in Year 1, will be paid in cash. 6. Notes payable of $20,000 will be paid in Year 2. 7. Long-term debt of $25,000 will be repaid in Year 2. 8. Kopp desires a minimum cash balance of $20,000 in Year 2. 9. The ratio of accounts payable to purchases will remain the same in Year 2 as in Year 1. Required: a. Prepare a statement of forecasted cash inflows and outflows (what-if analysis) for the year ending Decem- ber 31, Year 2 b. Will Kopp Corporation have to borrow money in Year 2? CHECK Forecasted cash need, $35,898
