Question 1

Waterways prepared the balance sheet and income statement for the irrigation installation division for 2020. Now the company also needs to male a statement of cash flows for the same division. The comparative balance sheets for Waterways Corporation's Irrigation Installation Division for the years 2019 and 2020 and the income statement for the year 2020 are presented below.

Additional information:

1.Waterways sold a company vehicle for $23,700. The vehicle had been used for 10 years. It cost $80,800 when purchased and had a 10-year life and a $6,100 salvage value. Straight-line depreciation was used.2.Waterways purchased with cash new equipment costing $210,800.

3.Prepaid expenses increased by $33,600. All changes in accounts payable relate to inventory purchases.

WATERWAYS CORPORATIONINSTALLATION DIVISION

Balance Sheets

December 31

Assets 2020 2019

Current assets

Cash $841,400 $744,600

Accounts receivable 677,900 547,300

Work in process 704,500

Inventory 16,900 7,600

Prepaid expenses 76,500 42,900

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Total current assets 2,317,200 1,342,400

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Property, plant, and equipment

Land 300,000 300,000

Buildings 451,000 451,000

Equipment 937,700 807,700

Furnishings 40,700 40,700

Accumulated depreciation (479,900) (486,200)

Total property, plant, and equipment 1,249,500 1,113,200

Total assets $3,566,700 $2,455,600

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Liabilities and Stockholders' Equity

Current liabilities

Accounts payable $157,100 $128,300

Income taxes payable 102,300 80,300

Wages payable 4,500 2,000

Interest payable 1,200

Other current liabilities 14,400 15,200

Revolving bank loan payable 15,100

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Total current liabilities 294,600 225,800

Long-term liabilities

Note payable 140,000

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Total liabilities 434,600 225,800

Stockholders' equity

common stock 1,250,000 1,250,000

Retained earnings 1,882,100 979,800

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Total stockholders' equity 3,132,100 2,229,800

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Total liabilities and stockholders' equity $3,566,700 $2,455,600

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WATERWAYS CORPORATIONINSTALLATION DIVISION

Income Statement

For the Year Ending December 31, 2020

Sales $5,564,200

Less: Cost of goods sold 3,159,100

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Gross profit 2,405,100

Operating expenses

Advertising $49,600

Insurance 400,500

Salaries and wages 581,700

Depreciation 68,400

Other operating expenses 21,300

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Total operating expenses 1,121,500

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Income from operations 1,283,600

Other income

Gain on sale of equipment 17,600

Other expenses

Interest expense (12,200)

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Net other income and expenses 5,400

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Income before income tax 1,289,000

Income tax expense 386,700

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Net income $902,300

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(a) Make a statement of cash flows using the indirect method 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).)

WATERWAYS CORPORATIONInstallation Division

Statement of Cash FlowsIndirect Method

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Adjustments to reconcile net income to

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(c) Determine free cash flow for the year 2020. (Enter negative amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Free cash flow $_________