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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 Corporation’s 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.

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Deanna Hettinger
Deanna HettingerLv2
28 Sep 2019

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