Answer:
Explanation:
From the given information: we are to:
a) Prepare an income statement for Ponzi for today and for each of the next three quarters. Ignore taxes. (LO1)
An income statement involves depicts the achievement of a certain business over a period of time .
The income statement for Ponzi for today and for each of the next three quarters is as follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Sales $0 $550 $600 $0
(-)
cost of goods 0 $500 $500 $0
sold
Net income 0 $50 $100 0
We will see that in the first and the fourth quarter ; the firm neither pay any cash to purchase goods nor collect cash for sales. Thus ; the cashflow will be zero in those instances and we will consider only the second and the fourth quarter for sales income and production cost.
SO:
Quarter 2 sales = 50 × 11 = $550
Quarter 3 sales = 50 × 12 = $600
(b) What are the cash flows for the company today and in each of the next three quarters?
Cash flow is like a database that helps to keep tracks and records the cash inflows and cash outflows of a financial instrument.
The cash flow in each month is as follows:
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Sales $0 $550 $600 $0
(-)
cost of goods 0 $500 $500 $0
sold
Net income 0 $50 $100 0
Inventories $1000 $500 0 0
Account
Receivables 0 550 600 0
Net working
capital $1000 $1050 $600 0
Change in WC $1000 $50 $450 $600
CashFlow $1000 $0 $550 $600
Hint:
The Cash flow = net income - change in net working capital
The net working capital = Inventory + Account receivables
Quarter 2 sales = 50 × 11 = $550
Quarter 3 sales = 50 × 12 = $600
(c) What is Ponzi’s net working capital in each quarter? (LO1)
The net working capital in each quarter can be illustrated as :
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Inventories $1000 $500 0 $0
Account recei- 0 $550 $600 $0
vables
Net working $1000 $1050 $600 $0
capital
