Your company has been approached by ZZZ Service Corporation to become an investment partner. ZZZ formed on 12/31/2016 and started business on 1/01/2017. They have completed two years of business and our quick to point out how quickly they were able to grow sales. ZZZ has provided the following balance sheet:

ZZZ also provided the following income statement: (picture2)

ZZZs statements are unaudited and they did not provide a cash flow statement. Their accounting department is quite inexperienced and was unable to create a cash flow statement. Your CFO has received these statements directly from the company. He wants you to analyze them and identify if there are any errors.

Required:

1. Prepare an indirect cash flow statement in good form. Use the example provided in the textbook as a model format. If you identify any errors in the financial statements, note it in your work and adjust opening balances to balance the statement properly.

2. Prepare a memo discussing the cash flow statement and if ZZZ appears to be a good investment. ZZ is asking for $80,000 for a 25% interest in the company. ZZZ says this is a bargain given sales, cash growth and size of asset base. Hint: Pay particular attention to cash flows from operating activities and take a close look at the balance sheet in relation to the income statement.

Balance Sheet Income Statement Balance Sheet Income Statement