Reference no: EM132622509

THE INCOME STATEMENT AND STATEMENT OF CASH FLOWS

Ocra Corporation began operations July 1, 20X1. During the six months ended December 31, 20X1, the following events took place:

a. The owners invested $200,000 cash in exchange for shares of stock.

b. Total commissions earned amounted to $325,000, of which $75,000 had not yet been collected in cash by December 31.

c. Total operating expenses amounted to $248,000, of which $40,000 had not yet been paid in cash by December 31.

d. The firm borrowed $75,000 cash from a local bank.

e. Various items of property, plant, and equipment were purchased for $130,000 cash.

f. The firm declared and paid dividends in cash, amounting to $15,000.

g. The firm invested $20,000 of excess cash in a long-term investment.

h. During the six-month period, interest revenue earned on the investments amounted to $1,400, of which $1,000 was received in cash.

Required

Problem 1. Prepare an income statement and a statement of cash flows for the six months ended December 31, 20X1 (taxes are ignored for simplicity).

Problem 2. What information does the statement of cash flows contain that cannot be learned from the income statement?

Problem 3. Analysis: Item (f) states that Ocra paid $15,000 in cash dividends in its first six months of operations. How else might Ocra have used this $15,000? Do you think it was a good idea to pay this cash dividend so soon after Ocra began business? Explain your answer.