Waterways prepared the balance sheet and income statement for the irrigation installation division for 2020. 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 $24,100. The vehicle had been used for 10 years. It cost $80,600 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 $207,700.

3. Prepaid expenses increased by $34,900. All changes in accounts payable relate to inventory purchases.

WATERWAYS CORPORATIONINSTALLATION DIVISION

Balance Sheets

December 31

Assets 2020 2019

Current assets

Cash $833,200 $747,700

Accounts receivable

677,400 543,800

Work in process

700,100

Inventory

16,600 7,600

Prepaid expenses

77,200 42,300

Total current assets 2,304,500 1,341,400

Property, plant, and equipment 2020 2019

Land 297,000 297,000

Buildings 451,000 451,000

Equipment 933,400 806,300

Furnishings 40,400 40,400

Accumulated depreciation (479,100) (486,400)

Total property, plant, and equipment 1,242,700 1,108,300

Total assets $3,547,200 $2,449,700

Liabilities and Stockholders' Equity

Current liabilities

Accounts payable $156,300 $129,000

Income taxes payable 102,200 80,600

Wages payable 4,500 2,000

Interest payable 1,200

Other current liabilities 14,300 15,200

Revolving bank loan payable 14,800

Total current liabilities 293,300 226,800

Long-term liabilities

Note payable 140,000

Total liabilities 433,300 226,800

Stockholders' equity

Common stock 1,250,000 1,250,000

Retained earnings 1,863,900 972,900

Total stockholders' equity 3,113,900 2,222,900

Total liabilities and stockholders' equity $3,547,200 $2,449,700

WATERWAYS CORPORATIONINSTALLATION DIVISION

Income Statement

For the Year Ending December 31, 2020

Sales $5,516,657

Less: Cost of goods sold 3,123,800

Gross profit 2,392,857

Operating expenses

Advertising $49,700

Insurance 397,800

Salaries and wages 589,700

Depreciation 67,300

Other operating expenses 21,400

Total operating expenses 1,125,900

Income from operations 1,266,957

Other income

Gain on sale of equipment 18,100

Other expenses

Interest expense (12,200)

Net other income and expenses 5,900

Income before income tax 1,272,857

Income tax expense 381,857

Net income $891,000

(b) Please prepare a statement of cash flows using the direct method for the year 2020.

(c) Determine free cash flow for the year 2020.