Waterways prepared the balance sheet and income statement for the irrigation ins
ID: 2406629 • Letter: W
Question
Waterways prepared the balance sheet and income statement for the irrigation installation division for last year. Now the company needs to prepare a cash flow statement for the same division. The comparative balance sheets for Waterways Corporation’s Irrigation Installation Division for last year and the prior year and the income statement for last year are presented below. (Note: Work in Process is a current asset and should be treated as any other current asset.)
Additional information:
1. Waterways sold a piece of company equipment for $30,000. The equipment had been used for six years. It had cost $100,000 when purchases and had a 10-years life and a $10,000 salvage value. Straight-line depreciation was used.
2. Waterways purchased new equipment costing $200,000.
3. The division paid $100,000 in dividends.
Waterways Corporation - Installation Division
Income Statement
For the Year Ending December 31, Last Year
Sales
$5,536,077
Less: Cost of goods sold
3,132,777
Gross Profit
2,403,300
Operating expenses:
Advertising
$52,000
Insurance
382,000
Salaries and wages
594,650
Depreciation
72,500
Other operating expenses
30,500
Total operating expenses
1,131,650
Income from operations
1,271,650
Other income
Loss on sale of equip
(16,000)
Other expenses
Interest expense
(12,200)
Net other income and expenses
(28,200)
Income before income tax
1,243,450
Income tax expenses
373,035
Net income
$870,415
Waterways Corporation - Installation Division
Balance Sheet
December 31
Assets
Last Year
Prior Year
Current assets
Cash
$792,306
$746,681
Accounts receivable
680,750
542,685
Work in process
680,450
0
Inventory
16,750
7,500
Prepaid expenses
71,500
42,590
Total current assets
2,241,756
1,339,456
Property, plant, and equipment
Furnishings
40,416
40,416
Equipment
900,200
800,200
Buildings
450,000
450,000
Land
300,000
300,000
Accumulated depreciation
(503,704)
(485,204)
Total property, plant, and
equipment
1,186,912
1,105,412
Total Assets
$3,428,668
$2,444,868
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable
$156,300
$128,360
Income taxes payable
100,344
79,989
Wages payable
600
1,984
Interest payable
1,200
0
Other current liabilities
14,520
15,246
Revolving bank loan payable
16,000
0
Total current liabilities
288,964
225,579
Long-term liabilities
Notes payable
150,000
0
Total liabilities
438,964
225,579
Stockholders' equity
Common stock
1,250,000
1,250,000
Retained earnings
1,739,704
969,289
Total stockholders' equity
2,989,704
2,219,289
Total liabilities and stockholders' equity
$3,428,668
$2,444,868
Instructions:
For last year:
a. Prepare a statement of cash flow using the indirect method.
b. Determine free cash flow.
Waterways Corporation - Installation Division
Income Statement
For the Year Ending December 31, Last Year
Sales
$5,536,077
Less: Cost of goods sold
3,132,777
Gross Profit
2,403,300
Operating expenses:
Advertising
$52,000
Insurance
382,000
Salaries and wages
594,650
Depreciation
72,500
Other operating expenses
30,500
Total operating expenses
1,131,650
Income from operations
1,271,650
Other income
Loss on sale of equip
(16,000)
Other expenses
Interest expense
(12,200)
Net other income and expenses
(28,200)
Income before income tax
1,243,450
Income tax expenses
373,035
Net income
$870,415
Explanation / Answer
1 Statement of cashflows Cashflow from operating activities: Net income 870415 Adjustments: Loss on disposal of equipment 16000 Depreciation expense 72500 Increase in accounts receivable (680750-542685) -138065 Increase in work in process (680450-0) -680450 Increase in inventory (16750-7500) -9250 Increase in prepaid expenses (71500-42590) -28910 Increase in accounts payable (156300-128360) 27940 Increase in income taxes payable (100344-79989) 20355 Decrease In Wages payable (1984-600) -1384 Increase in interest payable (1200-0) 1200 Decrease in other current liabilities (15246-14520) -726 Increase in revolving bank loan payable (16000-0) 16000 Cashflow from operating activities (A) 165625 Cashflow from investing activities: Sale of equipment 30000 Purchase of equipment -200000 Cashflow from investing activities (B) -170000 Cashflow from financing activities: Issued notes payable (150000-0) 150000 Dividend paid -100000 Cashflow from financing activities © 50000 Net increase in cash (A)+(B)+© 45625 Add:Beginning balance of cash 746681 Ending balance of cash 792306 2 Free cashflow=Cashflow from operating activities-Capital expenditures Cashflow from operating activities=$ 165625 Capital expenditure=Ending balance pf property,Plant and equipment-Beginning balance of property,Plant and Equipment+Depreciation=1186912-1105412+72500=$ 154000 Free cashflow=165625-154000=$ 11625
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