Waterways prepared the balance sheet and income statement forthe irrigation installation division for last year. Now the companyneeds to prepare a cash flow statement for the same division. Thecomparative balance sheets for Waterways Corporationâs IrrigationInstallation Division for last year and the prior year and theincome statement for last year are presented below. (Note: Work inProcess is a current asset and should be treated as any othercurrent asset.)
Additional information:
1. Waterways sold a piece of company equipment for $30,000. Theequipment had been used for six years. It had cost $100,000 whenpurchases and had a 10-years life and a $10,000 salvage value.Straight-line depreciation was used.
2. Waterways purchased new equipment costing $200,000.
3. The division paid $100,000 in dividends.
Waterways Corporation - Installation Division
Income Statement
For the Year Ending December 31, Last Year
Sales
$5,536,077
Less: Cost of goods sold
3,132,777
Gross Profit
2,403,300
Operating expenses:
Advertising
$52,000
Insurance
382,000
Salaries and wages
594,650
Depreciation
72,500
Other operating expenses
30,500
Total operating expenses
1,131,650
Income from operations
1,271,650
Other income
Loss on sale of equip
(16,000)
Other expenses
Interest expense
(12,200)
Net other income and expenses
(28,200)
Income before income tax
1,243,450
Income tax expenses
373,035
Net income
$870,415
Waterways Corporation - Installation Division
Balance Sheet
December 31
Assets
Last Year
Prior Year
Current assets
Cash
$792,306
$746,681
Accounts receivable
680,750
542,685
Work in process
680,450
0
Inventory
16,750
7,500
Prepaid expenses
71,500
42,590
Total current assets
2,241,756
1,339,456
Property, plant, and equipment
Furnishings
40,416
40,416
Equipment
900,200
800,200
Buildings
450,000
450,000
Land
300,000
300,000
Accumulated depreciation
(503,704)
(485,204)
Total property, plant, and
equipment
1,186,912
1,105,412
Total Assets
$3,428,668
$2,444,868
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable
$156,300
$128,360
Income taxes payable
100,344
79,989
Wages payable
600
1,984
Interest payable
1,200
0
Other current liabilities
14,520
15,246
Revolving bank loan payable
16,000
0
Total current liabilities
288,964
225,579
Long-term liabilities
Notes payable
150,000
0
Total liabilities
438,964
225,579
Stockholders' equity
Common stock
1,250,000
1,250,000
Retained earnings
1,739,704
969,289
Total stockholders' equity
2,989,704
2,219,289
Total liabilities and stockholders' equity
$3,428,668
$2,444,868
Instructions:
For last year:
a. Prepare a statement of cash flowusing the indirect method.
b. Determine free cash flow.
Waterways prepared the balance sheet and income statement forthe irrigation installation division for last year. Now the companyneeds to prepare a cash flow statement for the same division. Thecomparative balance sheets for Waterways Corporationâs IrrigationInstallation Division for last year and the prior year and theincome statement for last year are presented below. (Note: Work inProcess is a current asset and should be treated as any othercurrent asset.)
Additional information:
1. Waterways sold a piece of company equipment for $30,000. Theequipment had been used for six years. It had cost $100,000 whenpurchases and had a 10-years life and a $10,000 salvage value.Straight-line depreciation was used.
2. Waterways purchased new equipment costing $200,000.
3. The division paid $100,000 in dividends.
Waterways Corporation - Installation Division | |||
Income Statement | |||
For the Year Ending December 31, Last Year | |||
Sales | $5,536,077 | ||
Less: Cost of goods sold | 3,132,777 | ||
Gross Profit | 2,403,300 | ||
Operating expenses: | |||
Advertising | $52,000 | ||
Insurance | 382,000 | ||
Salaries and wages | 594,650 | ||
Depreciation | 72,500 | ||
Other operating expenses | 30,500 | ||
Total operating expenses | 1,131,650 | ||
Income from operations | 1,271,650 | ||
Other income | |||
Loss on sale of equip | (16,000) | ||
Other expenses | |||
Interest expense | (12,200) | ||
Net other income and expenses | (28,200) | ||
Income before income tax | 1,243,450 | ||
Income tax expenses | 373,035 | ||
Net income | $870,415 |
Waterways Corporation - Installation Division | ||||
Balance Sheet | ||||
December 31 | ||||
Assets | Last Year | Prior Year | ||
Current assets | ||||
Cash | $792,306 | $746,681 | ||
Accounts receivable | 680,750 | 542,685 | ||
Work in process | 680,450 | 0 | ||
Inventory | 16,750 | 7,500 | ||
Prepaid expenses | 71,500 | 42,590 | ||
Total current assets | 2,241,756 | 1,339,456 | ||
Property, plant, and equipment | ||||
Furnishings | 40,416 | 40,416 | ||
Equipment | 900,200 | 800,200 | ||
Buildings | 450,000 | 450,000 | ||
Land | 300,000 | 300,000 | ||
Accumulated depreciation | (503,704) | (485,204) | ||
Total property, plant, and equipment | 1,186,912 | 1,105,412 | ||
Total Assets | $3,428,668 | $2,444,868 | ||
Liabilities and Stockholders' Equity | ||||
Current liabilities | ||||
Accounts payable | $156,300 | $128,360 | ||
Income taxes payable | 100,344 | 79,989 | ||
Wages payable | 600 | 1,984 | ||
Interest payable | 1,200 | 0 | ||
Other current liabilities | 14,520 | 15,246 | ||
Revolving bank loan payable | 16,000 | 0 | ||
Total current liabilities | 288,964 | 225,579 | ||
Long-term liabilities | ||||
Notes payable | 150,000 | 0 | ||
Total liabilities | 438,964 | 225,579 | ||
Stockholders' equity | ||||
Common stock | 1,250,000 | 1,250,000 | ||
Retained earnings | 1,739,704 | 969,289 | ||
Total stockholders' equity | 2,989,704 | 2,219,289 | ||
Total liabilities and stockholders' equity | $3,428,668 | $2,444,868 |
Instructions:
For last year:
a. Prepare a statement of cash flowusing the indirect method.
b. Determine free cash flow.