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 $ 34,000 $ 34,500

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, $ 11,500

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.