Question

"roblems Group A NA 1-32A Identifying the purpose and preparing the statement of cash flows- indirect method Official Reserve Rare Coins (ORRC) was formed on January 1, 2016. Additional data for the year follow: a. On January 1, 2016, ORRC issued no par common stock for $500,000. b. Early in January, ORRC made the following cash payments: 1. For store fixtures, $54,000 2. For merchandise inventory, $270,000 3. For rent expense on a store building, $11,000 c. Later in the year, ORRC purchased merchandise inventory on account for $244,000. Before year-end, ORRC paid $144,000 of this accounts payable. d. During 2016, ORRC sold 2,300 units of merchandise inventory for $225 each. Before year-end, the company collected 90% of this amount. Cost of goods sold for the year was $320,000, and ending merchandise inventory totaled $194,000. e. The store employs three people. The combined annual payroll is $88,000, of which ORRC still owes $6,000 at year-end. f. At the end of the year, ORRC paid income tax of $20,000. There are no income taxes payable. g. Late in 2016, ORRC paid cash dividends of $35,000. h. For store fixtures, ORRC uses the straight-line depreciation method, over five years, with zero residual value. Requirements 1. What is the purpose of the statement of cash flows? 2. Prepare ORRC's income statement for the year ended December 31, 2016. Use the single-step format, with all revenues listed together and all expenses listed together. 3. Prepare ORRC's balance sheet at December 31, 2016. 4. Prepare ORRC's statement of cash flows using the indirect method for the year ended December 31, 2016.

Answer 1

cash flow statement helps in analysing the usage of cash for operating investing and financing activities

Income statement
Sales	517500
Expenses
cost of goods sold	320000
Less Depreciation	10800
Less rent expense	11000
Less Salary	88000
Less tax	20000
Earnings after tax	67700
Less dividend	35000
Retained earnings	32700

Balance sheet
Equity & Liabilities		Assets
Common stock	500000	Store fixtures	43200
Retained earnings	32700	Inventory	194000
		Cash	349750
Salary payable	6000
Accounts Payable	100000
		Accounts receivable	51750
	638700		638700

Cash flows from operating activities:
Net income		67,700
Depreciation	10800
Accounts receivable	-51750
Increase in inventory	-1,94,000
Increase in accounts payable	1,00,000
Increase in salary payable	6,000
		-128950
Net cash provided by operating activities (a)		-61,250
Cash flows from investing activities:
Puchase of fixture	-54000
		-54,000
Net cash provided by Investing activities (b)		-54,000
Cash flows from financing activities:
Issuance of common stock	5,00,000
Dividend paid	-35,000
		4,65,000
Net cash provided by financing activities (c)		4,65,000
Net cash provided by all activities(a+b+c)		3,49,750
Cash balance, December 31, 2016		3,49,750