Question 1 Waterways prepared the balance sheet and income statement for the irrigation installation division for 2020. Now the company also needs to prepare 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 CORPORATION-INSTALLATION 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 Total current assets 2,317,200 1,342,400 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 1,249,500 $3,566,700 1,113,200 $2,455,600 $128,300 80,300 2,000 Total property, plant, and equipment Total assets Liabilities and Stockholders' Equity Current liabilities Accounts payable Income taxes payable Wages payable Interest payable Other current liabilities Revolving bank loan payable Total current liabilities Long-term liabilities Note payable Total liabilities Stockholders' equity Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $157,100 102,300 4,500 1,200 14,400 15,100 294,600 15,200 225,800 140,000 434,600 225,800 1,250,000 1,882,100 3,132,100 $3,566,700 1,250,000 979,800 2,229,800 $2,455,600 WATERWAYS CORPORATION-INSTALLATION DIVISION Income Statement For the Year Ending December 31, 2020 Sales $5,564,200 Less: Cost of goods sold 3,159,100 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 Total operating expenses 1,121,500 Income from operations 1,283,600 Other income Gain on sale of equipment 17,600 Other expenses Interest expense (12,200) Net other income and expenses 5,400 Income before income tax 1,289,000 Income tax expense 386,700 Net income $902,300 (a) Prepare 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 CORPORATION-Installation Division Statement of Cash Flows-Indirect Method Adjustments to reconcile net income to $ (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 $