Question

Ponzi Products produced 100 chain-letter kits this quarter, resulting in a total cash outlay of $10 per unit. It will sell 50 of the kits next quarter at a price of $11, and the other 50 kits in the third quarter at a price of $12. It takes a full quarter for Ponzi to collect its bills from its customers. (Ignore possible sales in earlier or later quarters.)

a. Prepare an income statement for Ponzi for today and for each of the next three quarters. Ignore taxes.
b. What are the cash flows for the company today and in each of the next three quarters?
c. What is Ponzi?

Answer 1

a) Ponzi Products

Income statement

For quarters 1, 2, 3 and 4 of year 202x

Q1 Q2 Q3 Q4

Sales revenue $0 $550 $600 $0

COGS $0 $500 $500 $0

Operating income $0 $50 $100 $0

Since no products are sold during the first and fourth quarter, their respective revenues, COGS and operating income is $0.

b) Ponzi Products

Schedule of Expected Cash Receipts

For quarters 1, 2, 3 and 4 of year 202x

Q1 Q2 Q3 Q4

Sales revenue $0 $0 $550 $600

Cost of goods man. ($1,000) $0 $0 $0

Net cash receipts ($1,000) $0 $550 $600

c) This question is incomplete, it should say what is Ponzi's net working capital for each quarter?

NWC = current assets - current liabilities

NWC Q1 = $1,000 (Merchandise inventory account, no liabilities)

NWC Q2 = $500 (Merchandise inventory account, no liabilities)

NWC Q3 = $550 (Cash account, no liabilities)

NWC Q4 = $1,150 (Cash account, no liabilities)