The comparative balance sheets of Waterways Corporation?s Irrigation Installation Division for the years 2016 and 2017 and the income statements for the year 2016 and 2017 are presented below.

Additional information:

85% of the sales for Waterways were credit sales. There are 5,000 shares outstanding for both years. This is a private corporation, whose shares are not available to the public

The comparative balance sheets of Waterways Corporation's Irrigation Installation Division for the years 2016 and 2017 and the income statements for the year 2016 and 2017 are presented below. Additional information: 85% of the sales for Waterways were credit sales. There are 5,000 shares outstanding for both years. This is a private corporation, whose shares are not available to the public. WATERWAYS CORPORATIONINSTALLATION DIVISION Balance Sheets December 31 Assets 2017 2016 Current assets Cash $836,797 $746,681 Accounts receivable 680,750 542,685 Work in process 702,159 Inventory 16,766 7,500 Prepaid expenses 76,550 42,590 Total current assets 2,313,022 1,339,456 Property, plant, and equipment Land 300,000 300,000 Buildings 450,000 450,000 Equipment 929,400 800,200 Furnishings 40,416 40,416 Accumulated depreciation (482,523) (485,204) Total property, plant, and equipment 1,237,293 1,105,412 Total assets $3,550,315 $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 Other current liabilities 14,515 15,246 Revolving bank loan payable 15,000 Total current liabilities 293,658 225,579 Long-term liabilities Note payable 140,000 Total liabilities 433,658 225,579 Stockholders' equity Common stock 1,250,000 1,250,000 Retained earnings 1,866,657 969,289 Total stockholders' equity 3,116,657 2,219,289 Total liabilities and stockholders' equity $3,550,315 $2,444,868 WATERWAYS CORPORATIONINSTALLATION DIVISION Income Statements For the Year Ending December 31 2017 2016 Sales $5,536,077 $4,957,266 Less: Cost of goods sold 3,132,777 2,807,316 Gross profit 2,403,300 2,149,950 Operating expenses Advertising 50,000 48,000 Insurance 400,000 400,000 Salaries and wages 584,640 554,640 Depreciation Other operating expenses Total operating expenses Income from operations Other income Gain on sale of equipment Other expenses Interest expense Income before income tax Income tax expense Net income 71,319 21,200 1,127,159 1,276,141 62,319 18,476 1,083,435 1,066,515 18,000 (12,187) 1,281,954 384,586 $897,368 1,066,515 319,955 $746,560 (a) Prepare a horizontal analysis of the income statement using 2016 as the base year. (Do not leave any answer field blank. Enter 0 for amounts. Round percentage values to 1 decimal place, e.g. 52.7%. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) WATERWAYS CORPORATIONINSTALLATION DIVISION Income Statement For the Year Ended December 31 2017 2016 Change Percent $ Sales $5,536,077 $4,957,266 % Less: Cost of goods sold 3,132,777 2,807,316 % Gross profit 2,403,300 2,149,950 % 50,000 48,000 % Insurance 400,000 400,000 % Salaries and wages 584,640 554,640 % Depreciation 71,319 62,319 % Other operating expenses 21,200 18,476 % Total operating expenses 1,127,159 1,083,435 % Income from operations 1,276,141 1,066,515 % Operating expenses Advertising Other income Gain on sale of equipment 18,000 % (12,187) % Other expenses Interest expense Income before income tax Income tax expense 1,281,954 1,066,515 % 384,586 319,955 % $ Net income $897,368 $746,560 % (b) Prepare a vertical analysis of the income statement for 2017. (Round percentage values to 1 decimal place, e.g. 52.7%. Enter negative amounts using either a negative sign preceding the number e.g. -45% or parentheses e.g. (45)%) WATERWAYS CORPORATIONINSTALLATION DIVISION Income Statement Amount Sales Percent $5,536,077 % Less: Cost of goods sold 3,132,777 % Gross profit 2,403,300 % 50,000 % 400,000 % 584,640 % 71,319 % 21,200 % 1,127,159 % 1,276,141 % Operating expenses Advertising Insurance Salaries and wages Depreciation Other operating expenses Total operating expenses Income from operations Other income Gain on sale of equipment 18,000 % (12,187) % Other expenses Interest expense Income before income tax Income tax expense Net income 1,281,954 % 384,586 % $897,368 % (c) Calculate the following ratios for 2017 and indicate whether the ratio is a liquidity, solvency, or profitability ratio. (Round answers to 2 decimal places, e.g. 52.75% or 2.75: 1 or $52.75. Use 365 days for calculation.) Type (1) Asset turnover ratio time s (2) Receivables turnover ratio time s (3) Average collection period days (4) Current ratio :1 (5) Debt to assets ratio % $ (6) Earnings per share (7) Profit margin rate % (8) Return on assets ratio % (9) Return on common stockholders' equity ratio (10) Times interest earned ratio (d) % time s Comment on your findings. The company's liquidity is Liquidity : . The company's solvency is very Solvency : . The company's profitability is Profitability : . By all measures the company appears to be both financially Overall : . Waterways prepared the balance sheet and income statement for the irrigation installation division for 2016. Now the company also needs to prepare a cash flow statement for the same division. The comparative balance sheets for Waterways Corporation's Irrigation Installation Division for the years 2015 and 2016 and the income statement for the year 2016 are presented below. Additional information: 1. Waterways sold a company vehicle for $24,000. The vehicle had been used for 10 years. It cost $80,000 when purchased and had a 10-year life and a $6,000 salvage value. Straight-line depreciation was used. 2. Waterways purchased with cash new equipment costing $209,200. 3. Prepaid expenses increased by $33,960. WATERWAYS CORPORATIONINSTALLATION DIVISION Balance Sheets December 31 Assets 2016 2015 Current assets Cash $836,797 $746,681 Accounts receivable 680,750 542,685 Work in process Inventory Prepaid expenses Total current assets Property, plant, and equipment Land Buildings Equipment Furnishings Accumulated depreciation 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 702,159 16,766 76,550 2,313,022 7,500 42,590 1,339,456 300,000 450,000 929,400 40,416 (482,523) 1,237,293 $3,550,315 300,000 450,000 800,200 40,416 (485,204) 1,105,412 $2,444,868 $157,095 101,344 4,517 1,187 14,515 15,000 293,658 $128,360 79,989 1,984 15,246 225,579 140,000 433,658 225,579 1,250,000 1,866,657 3,116,657 $3,550,315 1,250,000 969,289 2,219,289 $2,444,868 WATERWAYS CORPORATIONINSTALLATION DIVISION Income Statement For the Year Ending December 31, 2016 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 equipment 18,000 Other expenses Interest expense (12,187) Net other income and expenses 5,813 Income before income tax 1,281,954 Income tax expense 384,586 Net income $897,368 (a) Prepare a statement of cash flows using the indirect method for the year 2016. (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 For the Year Ended December 31, 2016 $ Adjustments to reconcile net income to $ $ (c) Determine free cash flow for the year 2016. (Enter negative amount using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) $ Free cash flow