Question

The comparative balance sheets of Oriole Corporation at the beginning and end of the year 2020 appear below. ORIOLE CORPORATION BALANCE SHEETS Dec. 31, 2020 Jan. 1, 2020 Inc./Dec. Assets Cash $21,680 $14,700 $6,980 Inc. Accounts receivable 107,680 89,700 17,980 Inc. Equipment 40,680 23,700 16,980 Inc. Less: Accumulated Depreciation-Equipment (17,000 ) (11,000 ) 6,000 Inc.     Total $153,040 $117,100    Liabilities and Stockholders’ Equity Accounts payable $21,680 $16,700 4,980 Inc. Common stock 101,680 81,700 19,980 Inc. Retained earnings 29,680 18,700 10,980 Inc.     Total $153,040 $117,100 Net income of $45,680 was reported, and dividends of $34,700 were paid in 2020. New equipment was purchased and none was sold.

Prepare a statement of cash flows for the year 2020. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).) ORIOLE CORPORATION Statement of Cash Flows December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020 $ $     Net Income    Decrease in Accounts Receivable    Decrease in Accounts Payable    Payment of Dividends    Depreciation    Increase in Accounts Receivable    Purchase of Equipment    Loss on Sale of Euipment    Increase in Accounts Payable    Issuance of Stock         Issuance of Stock    Depreciation    Purchase of Equipment    Decrease in Accounts Receivable    Net Income    Increase in Accounts Receivable    Payment of Dividends    Decrease in Accounts Payable    Increase in Accounts Payable    Loss on Sale of Euipment         Decrease in Accounts Payable    Issuance of Stock    Loss on Sale of Euipment    Decrease in Accounts Receivable    Increase in Accounts Receivable    Payment of Dividends    Depreciation    Net Income    Increase in Accounts Payable    Purchase of Equipment         Increase in Accounts Receivable    Decrease in Accounts Payable    Issuance of Stock    Loss on Sale of Euipment    Depreciation    Net Income    Increase in Accounts Payable    Purchase of Equipment    Payment of Dividends    Decrease in Accounts Receivable        $

Compute the current ratio (current assets ÷ current liabilities) as of January 1, 2020, and December 31, 2020. (Round ratios to 1 decimal place., e.g. 4.5.) December 31, 2020 January 1, 2020 Current ratio Compute free cash flow for the year 2020. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).) Free Cash Flow $

In light of the analysis in (part b), comment on Oriole’s liquidity and financial flexibility. Oriole company has goodbad liquidity and goodbad financial flexibility.

Answer 1

Cash Flow Statement
Indirect Method
Cash flow from Operating Activities
Net Income		$          45,680
Adjustments
Depreciation	$            6,000
Increase in Accounts Receivable	$        -17,980
Increase in Accounts payable	$            4,980
Total Adjustments		$          -7,000
Net Cash from operating activities			$         38,680
Cash flow from Investing Activities
Purchase of Equipment		$        -16,980
Net Cash used in investing activities			$       -16,980
Cash flow from Financing Activities
Issue of Common Stock		$          19,980
Payment of cash dividends		$        -34,700
Net Cash used in financing activities			$       -14,720
Net Increase in cash			$           6,980
Cash, beginning of the year			$         14,700
Cash, ending of the year			$         21,680

Current Ratio = Current Assets / Current Liabilities
= $(21680+107680) /21680 = 5.97

Free Cash Flow = Cash from operating activities - Capital expenditures
= $38680-16980 = $21700

Oriole company has good liquidity and good financial flexibility