P2-22 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

1. Prepare a n income statement and a statement of cash flows for the six months ended

December 31, 20X1 (taxes are ignored for simplicity).

2. What information does the statement of cash flows contain that cannot be learned

from the income statement?

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.