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 CORPORATION?INSTALLATION DIVISION Balance Sheets December 31
Assets	2016	2015
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 CORPORATION?INSTALLATION 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 CORPORATION?Installation Division Statement of Cash Flows?Indirect Method For the Year Ended December 31, 2016
Cash flows from investing activities Net cash used by operating activitiesNet cash used by investing activitiesNet cash used by financing activitiesCash flows from operating activitiesNet cash provided by investing activitiesNet cash provided by financing activitiesNet increase in cashNet decrease in cashCash at beginning of periodCash at end of periodCash flows from financing activities Net cash provided by operating activities
Increase in prepaid expensesDecrease in other current liabilitiesDecrease in prepaid expensesDepreciation expenseIncrease in other current liabilitiesDecrease in income taxes payablePurchase of equipmentIncrease in accounts payableNet lossProceeds from bank loanIncrease in work in processSale of equipmentGain on sale of equipmentDecrease in inventoryDecrease in accounts payableProceeds from note payableIncrease in income taxes payableIncrease in wages payableDecrease in wages payableIncrease in accounts receivableLoss on sale of equipmentIncrease in interest payableNet incomeDecrease in accounts receivableDecrease in interest payableDecrease in work in processIncrease in inventory	$
Adjustments to reconcile net income to
Net cash provided by operating activitiesNet cash used by operating activitiesNet cash used by investing activitiesCash at beginning of periodNet cash used by financing activitiesNet cash provided by investing activitiesCash flows from operating activitiesNet cash provided by financing activitiesCash flows from financing activities Net increase in cashNet decrease in cashCash at end of periodCash flows from investing activities
Decrease in work in processNet incomeDecrease in prepaid expensesGain on sale of equipmentIncrease in accounts payableLoss on sale of equipmentProceeds from bank loanIncrease in other current liabilitiesDecrease in interest payableDecrease in accounts receivableIncrease in accounts receivableDecrease in other current liabilitiesDecrease in income taxes payableDecrease in accounts payableIncrease in income taxes payableNet lossPurchase of equipmentIncrease in work in processIncrease in prepaid expensesIncrease in inventorySale of equipmentIncrease in wages payableIncrease in interest payableDecrease in wages payableProceeds from note payableDepreciation expenseDecrease in inventory	$
Decrease in income taxes payableIncrease in inventoryIncrease in wages payableDecrease in wages payableIncrease in interest payableIncrease in prepaid expensesGain on sale of equipmentIncrease in work in processDecrease in work in processDecrease in prepaid expensesDecrease in inventoryIncrease in accounts payableDecrease in other current liabilitiesIncrease in other current liabilitiesDecrease in accounts payableIncrease in income taxes payableDecrease in interest payablePurchase of equipmentSale of equipmentProceeds from bank loanProceeds from note payableNet incomeNet lossDepreciation expenseLoss on sale of equipmentIncrease in accounts receivableDecrease in accounts receivable
Decrease in other current liabilitiesIncrease in inventoryDecrease in accounts receivableIncrease in accounts receivableDecrease in inventoryIncrease in prepaid expensesDecrease in income taxes payableIncrease in other current liabilitiesIncrease in accounts payableDecrease in prepaid expensesDecrease in accounts payableDepreciation expenseIncrease in income taxes payableProceeds from note payableIncrease in wages payableGain on sale of equipmentDecrease in wages payableIncrease in interest payableIncrease in work in processDecrease in interest payablePurchase of equipmentDecrease in work in processSale of equipmentLoss on sale of equipmentProceeds from bank loanNet incomeNet loss
Increase in prepaid expensesDecrease in work in processLoss on sale of equipmentIncrease in work in processDecrease in prepaid expensesGain on sale of equipmentDecrease in interest payableIncrease in accounts payableIncrease in inventoryIncrease in interest payableDecrease in accounts payableDecrease in other current liabilitiesIncrease in wages payableIncrease in other current liabilitiesDecrease in inventoryDepreciation expenseNet lossIncrease in income taxes payablePurchase of equipmentIncrease in accounts receivableDecrease in income taxes payableSale of equipmentDecrease in accounts receivableDecrease in wages payableProceeds from bank loanProceeds from note payableNet income
Net lossIncrease in work in processIncrease in prepaid expensesDecrease in prepaid expensesIncrease in accounts payableDecrease in income taxes payableProceeds from bank loanDecrease in work in processIncrease in wages payableIncrease in inventoryNet incomeDecrease in other current liabilitiesDepreciation expenseDecrease in inventoryGain on sale of equipmentPurchase of equipmentDecrease in accounts payableProceeds from note payableIncrease in income taxes payableIncrease in other current liabilitiesLoss on sale of equipmentIncrease in accounts receivableDecrease in accounts receivableDecrease in wages payableIncrease in interest payableDecrease in interest payableSale of equipment
Increase in wages payablePurchase of equipmentDecrease in work in processDecrease in inventoryDecrease in accounts payableIncrease in inventoryIncrease in income taxes payableIncrease in work in processDecrease in income taxes payableNet lossIncrease in prepaid expensesDecrease in prepaid expensesDecrease in wages payableProceeds from bank loanIncrease in accounts payableDepreciation expenseIncrease in interest payableNet incomeProceeds from note payableGain on sale of equipmentDecrease in interest payableLoss on sale of equipmentDecrease in other current liabilitiesIncrease in accounts receivableSale of equipmentDecrease in accounts receivableIncrease in other current liabilities
Decrease in other current liabilitiesDecrease in income taxes payableIncrease in income taxes payableIncrease in prepaid expensesLoss on sale of equipmentIncrease in interest payableIncrease in other current liabilitiesIncrease in work in processIncrease in accounts receivableDepreciation expenseNet incomeIncrease in wages payableDecrease in work in processIncrease in inventoryDecrease in inventoryDecrease in wages payableDecrease in accounts receivableDecrease in prepaid expensesDecrease in interest payableIncrease in accounts payableDecrease in accounts payablePurchase of equipmentGain on sale of equipmentSale of equipmentProceeds from bank loanProceeds from note payableNet loss
Increase in work in processDecrease in other current liabilitiesGain on sale of equipmentDecrease in wages payableDecrease in work in processIncrease in interest payableIncrease in wages payableDepreciation expenseIncrease in accounts payableIncrease in prepaid expensesIncrease in income taxes payableDecrease in interest payableDecrease in accounts payableProceeds from note payableIncrease in inventoryNet incomeNet lossLoss on sale of equipmentDecrease in inventoryIncrease in other current liabilitiesIncrease in accounts receivableDecrease in income taxes payableDecrease in accounts receivableDecrease in prepaid expensesPurchase of equipmentSale of equipmentProceeds from bank loan
Decrease in wages payableDecrease in accounts payableGain on sale of equipmentPurchase of equipmentIncrease in accounts payableProceeds from bank loanDecrease in work in processProceeds from note payableLoss on sale of equipmentIncrease in wages payableDepreciation expenseIncrease in income taxes payableIncrease in accounts receivableDecrease in income taxes payableDecrease in accounts receivableDecrease in prepaid expensesDecrease in interest payableNet incomeIncrease in interest payableDecrease in other current liabilitiesIncrease in other current liabilitiesNet lossIncrease in work in processIncrease in inventorySale of equipmentDecrease in inventoryIncrease in prepaid expenses
Gain on sale of equipmentDecrease in wages payableIncrease in income taxes payableIncrease in interest payableDecrease in interest payableIncrease in other current liabilitiesIncrease in prepaid expensesDecrease in accounts receivableDecrease in accounts payableProceeds from note payableSale of equipmentIncrease in inventoryIncrease in accounts payableProceeds from bank loanDecrease in other current liabilitiesDecrease in inventoryNet incomeDecrease in prepaid expensesPurchase of equipmentNet lossDecrease in income taxes payableIncrease in wages payableIncrease in work in processDepreciation expenseLoss on sale of equipmentIncrease in accounts receivableDecrease in work in process
Decrease in interest payableProceeds from note payableDecrease in prepaid expensesNet incomeIncrease in accounts receivableDecrease in other current liabilitiesDecrease in work in processLoss on sale of equipmentNet lossIncrease in accounts payableIncrease in inventoryGain on sale of equipmentDepreciation expenseDecrease in accounts receivableIncrease in work in processDecrease in income taxes payableDecrease in inventoryIncrease in prepaid expensesDecrease in accounts payableIncrease in income taxes payableIncrease in wages payableDecrease in wages payableSale of equipmentIncrease in interest payableIncrease in other current liabilitiesPurchase of equipmentProceeds from bank loan
Net increase in cashCash at end of periodNet decrease in cashNet cash used by financing activitiesCash flows from operating activitiesNet cash provided by operating activitiesCash flows from financing activitiesCash at beginning of periodNet cash used by operating activitiesCash flows from investing activitiesNet cash used by investing activitiesNet cash provided by investing activitiesNet cash provided by financing activities
Net increase in cashNet decrease in cashCash at beginning of periodNet cash used by operating activitiesCash at end of periodNet cash used by investing activitiesCash flows from financing activities Cash flows from operating activitiesNet cash provided by operating activitiesCash flows from investing activities Net cash provided by investing activitiesNet cash used by financing activitiesNet cash provided by financing activities
Purchase of equipmentIncrease in accounts receivableProceeds from bank loanIncrease in other current liabilitiesDecrease in income taxes payableProceeds from note payableDepreciation expenseIncrease in prepaid expensesLoss on sale of equipmentSale of equipmentDecrease in prepaid expensesNet incomeNet lossDecrease in other current liabilitiesDecrease in accounts receivableIncrease in income taxes payableIncrease in wages payableDecrease in wages payableDecrease in work in processGain on sale of equipmentIncrease in work in processIncrease in interest payableIncrease in inventoryDecrease in inventoryIncrease in accounts payableDecrease in accounts payableDecrease in interest payable
Increase in work in processNet incomeIncrease in other current liabilitiesIncrease in wages payableNet lossDecrease in accounts payableGain on sale of equipmentDecrease in other current liabilitiesPurchase of equipmentSale of equipmentDecrease in inventoryIncrease in income taxes payableLoss on sale of equipmentProceeds from bank loanProceeds from note payableDepreciation expenseIncrease in accounts receivableDecrease in accounts receivableDecrease in work in processIncrease in prepaid expensesIncrease in inventoryDecrease in prepaid expensesIncrease in accounts payableIncrease in interest payableDecrease in wages payableDecrease in income taxes payableDecrease in interest payable
Net cash provided by financing activitiesCash flows from financing activitiesNet decrease in cashCash at beginning of periodCash flows from investing activitiesCash at end of periodNet cash provided by operating activitiesNet cash used by operating activitiesCash flows from operating activitiesNet cash used by investing activitiesNet cash provided by investing activitiesNet cash used by financing activitiesNet increase in cash
Net cash used by investing activitiesCash flows from investing activities Net cash provided by operating activitiesCash at beginning of periodNet cash used by operating activitiesNet cash provided by investing activitiesNet cash provided by financing activitiesNet cash used by financing activitiesNet increase in cashNet decrease in cashCash at end of periodCash flows from operating activitiesCash flows from financing activities
Gain on sale of equipmentIncrease in wages payableIncrease in interest payableIncrease in other current liabilitiesProceeds from bank loanNet lossIncrease in prepaid expensesDecrease in work in processDecrease in wages payableProceeds from note payableDecrease in prepaid expensesPurchase of equipmentIncrease in accounts receivableLoss on sale of equipmentDecrease in income taxes payableDecrease in inventoryIncrease in accounts payableDecrease in accounts payableIncrease in income taxes payableDecrease in interest payableNet incomeDecrease in other current liabilitiesSale of equipmentDepreciation expenseDecrease in accounts receivableIncrease in work in processIncrease in inventory
Decrease in other current liabilitiesDecrease in prepaid expensesIncrease in inventoryIncrease in wages payableDecrease in work in processIncrease in other current liabilitiesDecrease in accounts receivableDepreciation expenseIncrease in income taxes payableDecrease in income taxes payableGain on sale of equipmentDecrease in wages payableLoss on sale of equipmentIncrease in interest payableProceeds from note payableDecrease in interest payablePurchase of equipmentIncrease in accounts receivableSale of equipmentProceeds from bank loanIncrease in accounts payableDecrease in accounts payableNet incomeNet lossIncrease in work in processDecrease in inventoryIncrease in prepaid expenses
Net decrease in cashCash at beginning of periodNet cash provided by operating activitiesNet cash used by investing activitiesCash flows from financing activitiesNet cash used by operating activitiesNet cash used by financing activitiesCash flows from operating activitiesNet cash provided by investing activitiesNet cash provided by financing activitiesCash at end of periodCash flows from investing activitiesNet increase in cash
Net cash provided by operating activitiesNet cash provided by financing activitiesNet cash provided by investing activitiesNet cash used by operating activitiesCash at beginning of periodCash flows from investing activities Net increase in cashCash flows from financing activities Net cash used by financing activitiesNet decrease in cashNet cash used by investing activitiesCash at end of periodCash flows from operating activities
Cash flows from financing activities Net increase in cashNet cash provided by financing activitiesNet cash provided by operating activitiesNet cash used by investing activitiesNet decrease in cashCash at beginning of periodNet cash used by operating activitiesNet cash provided by investing activitiesCash flows from operating activitiesNet cash used by financing activitiesCash flows from investing activities Cash at end of period
Cash flows from investing activities Cash at end of periodNet cash provided by financing activitiesCash flows from operating activitiesCash flows from financing activities Net cash used by investing activitiesNet cash used by financing activitiesNet cash provided by investing activitiesNet cash provided by operating activitiesNet increase in cashNet decrease in cashCash at beginning of periodNet cash used by operating activities	$

(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

$

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