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Category > Management Posted 10 Dec 2017 My Price 9.00

Zaro Company

P 10-9.           Zaro Company’s balance sheets for December 31, 2007 and 2006, income statement for the year ended December 31, 2007, and the statement of cash flows for the year ended December 31, 2007, follow:

 

 

ZARO COMPANY

Balance Sheet December 31, 2007 and  2006

 

2007

 

2006

Assets

Cash

 

$  30,000

 

 

$ 15,000

Accounts receivable, net

75,000

 

87,000

Inventory

90,000

 

105,000

 

 

 

 

2007

 

2006

Prepaid  expenses

3,000

 

2,000

Land

25,000

 

25,000

Building and equipment

122,000

 

120,000

Accumulated depreciation

(92,000)

 

(80,000)

Total assets

$253,000

 

$274,000

Liabilities and Stockholders’ Equity

 

 

 

Accounts payable

$  25,500

 

$ 32,000

Income taxes payable

2,500

 

3,000

Accrued liabilities

5,000

 

5,000

Bonds payable (current $20,000 at 12/31/07)

90,000

 

95,000

Common stock

85,000

 

85,000

Retained earnings

45,000

 

54,000

Total  liabilities and stockholders’ equity

$253,000

 

$274,000

 

ZARO COMPANY

Income Statement

For Year Ended December 31,  2007

 

Sales

Less expense:

Cost of goods sold (includes depreciation of    $5,000)

$400,000

 

$280,000

Selling and administrative expenses (includes depreciation expenses of $7,000)

78,000

Interest expense

8,000

Total expenses

$366,000

Income before taxes

34,000

Income tax expense

14,000

Net income

$  20,000

 

ZARO COMPANY

Statement of Cash Flows

For Year Ended December 31,  2007

Net cash flow from operating   activities:

 

Net income

Noncash expenses, revenues, losses, and gains included in  income: Depreciation

$ 20,000

 

 

12,000

 

Decrease in accounts receivable

12,000

Decrease in inventory

15,000

Increase in prepaid expenses

(1,000)

Decrease in accounts payable

(6,500)

Decrease in income taxes payable

(500)

Net cash flow from operating activities Cash flows from investing  activities:

Increase in buildings and equipment

 

 

$ (2,000)

$ 51,000

Net cash used by investing activities Cash flows from financing   activities:

Decrease in bonds payable

 

 

$ (5,000)

(2,000)

Cash  dividends paid

(29,000)

 

Net cash used for financing  activities

 

(34,000)

Net increase in cash

 

$ 15,000

 

The president of Zaro Company cannot understand how the company was able to pay cash dividends that were greater than net income and at the same time increase the cash balance. He notes that business was down slightly in 2007.

 

Required           a.    Comment on the statement of cash   flows.

b.      Compute the following liquidity ratios for 2007:

1.      Current ratio

2.      Acid-test ratio

3.      Operating cash flow/current maturities of long-term debt and current notes payable

4.      Cash ratio

 

 

 

 

 

c.      Compute the following debt ratios for 2007:

1.      Times interest earned

2.      Debt ratio

d.     Compute the following profitability ratios for 2007:

1.      Return on assets (using average assets)

2.      Return on common equity (using average common equity)

e.      Give your opinion as to the liquidity of Zaro.

f.       Give your opinion as to the debt position of Zaro.

g.      Give your opinion as to the profitability of Zaro.

h.     Explain to the president how Zaro was able to pay cash dividends that were greater than net income and at the same time increase the cash balance.

Answers

(5)
Status NEW Posted 10 Dec 2017 07:12 PM My Price 9.00

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