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.