ACCTG414 Study Guide - Financial Statement, Dividend, Retained Earnings
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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 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.
1. Waterways sold a piece of company equipment for $24,000. The equipment had been used for ten years. It had cost $80,000 when purchases and had a 10-years life and a $6,000 salvage value. Straight-line depreciation was used.
2. Waterways purchased new equipment costing $209,200.
3. The division paid $50,000 in dividends.
Waterways Corporation - Installation Division | |||
Income Statement | |||
For the year ending December 31 | |||
Sales | $5,536,077 | ||
Less: Cost of goods sold | 3,132,777 | ||
Gross Profit | 2,403,300 | ||
Operating expenses: | |||
Advertising | $50,000 | ||
Insurance | 400,000 | ||
Salaries and wages | 584,640 | ||
Depreciation | 71,319 | ||
Other operating expenses | 21,200 | ||
Total operating expenses | 1,127,159 | ||
Income from operations | 1,276,141 | ||
Other income | |||
Gain on sale of equip | 18,000 | ||
Other expenses | |||
Interest expense | (12,187) | ||
Net other income and expenses | 5,813 | ||
Income before income tax | 1,281,954 | ||
Income tax expenses | 384,586 | ||
Net income | $897,368 |
Waterways Corporation - Installation Division | ||||
Balance Sheet | ||||
December 31 | ||||
Assets | This Year | Last Year | ||
Current assets | ||||
Cash | $786,797 | $746,681 | ||
Accounts receivable | 680,750 | 542,685 | ||
Work in process | 702,159 | 0 | ||
Inventory | 16,766 | 7,500 | ||
Prepaid expenses | 76,550 | 42,590 | ||
Total current assets | 2,263,022 | 1,339,456 | ||
Property, plant, and equipment | ||||
Furnishings | 40,416 | 40,416 | ||
Equipment | 929,400 | 800,200 | ||
Buildings | 450,000 | 450,000 | ||
Land | 300,000 | 300,000 | ||
Accumulated depreciation | (482,523) | (485,204) | ||
Total property, plant, and equipment | 1,237,293 | 1,105,412 | ||
Total Assets | $3,500,315 | $2,444,868 | ||
Liabilities and Stockholders' Equity | ||||
Current liabilities | ||||
Accounts payable | $157,095 | $128,360 | ||
Income taxes payable | 101,344 | 79,989 | ||
Wages payable | 4,517 | 1,984 | ||
Interest payable | 1,187 | 0 | ||
Other current liabilities | 14,515 | 15,246 | ||
Revolving bank loan payable | 15,000 | 0 | ||
Total current liabilities | 293,658 | 225,579 | ||
Long-term liabilities | ||||
Notes payable | 140,000 | 0 | ||
Total liabilities | 433,658 | 225,579 | ||
Stockholders' equity | ||||
Common stock | 1,250,000 | 1,250,000 | ||
Retained earnings | 1,816,657 | 969,289 | ||
Total stockholders' equity | 3,066,657 | 2,219,289 | ||
Total liabilities and stockholders' equity | $3,500,315 | $2,444,868 |
Instructions:
a. Prepare a statement of cash flow using the indirect method for this year.
b. Determine free cash flow.