Question

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 $24,200. The vehicle had been used for 10 years. It cost $80,500 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 $209,100. 3. Prepaid expenses increased by $33,800. All changes in accounts payable relate to inventory purchases.

WATERWAYS CORPORATION—INSTALLATION DIVISION Balance Sheets December 31
Assets				2020		2019
Current assets
	Cash			$829,900		$751,300
	Accounts receivable			679,600		543,100
	Work in process			705,000		—
	Inventory			16,800		7,500
	Prepaid expenses			76,200		42,400
	Total current assets			2,307,500		1,344,300
Property, plant, and equipment
	Land			302,000		302,000
	Buildings			447,000		447,000
	Equipment			921,800		793,200
	Furnishings			40,300		40,300
	Accumulated depreciation			(483,600	)	(483,800	)
	Total property, plant, and equipment			1,227,500		1,098,700
Total assets				$3,535,000		$2,443,000
Liabilities and Stockholders’ Equity
Current liabilities
	Accounts payable			$157,000		$128,300
	Income taxes payable			101,500		80,700
	Wages payable			4,400		2,000
	Interest payable			1,100		—
	Other current liabilities			14,600		15,100
	Revolving bank loan payable			14,900		—
	Total current liabilities			293,500		226,100
Long-term liabilities
	Note payable			142,000		—
	Total liabilities			435,500		226,100
Stockholders’ equity
	Common stock			1,250,000		1,250,000
	Retained earnings			1,849,500		966,900
	Total stockholders’ equity			3,099,500		2,216,900
Total liabilities and stockholders’ equity				$3,535,000		$2,443,000

WATERWAYS CORPORATION—INSTALLATION DIVISION Income Statement For the Year Ending December 31, 2020
Sales					$5,513,457
Less: Cost of goods sold					3,125,200
Gross profit					2,388,257
Operating expenses
	Advertising		$50,500
	Insurance		400,400
	Salaries and wages		587,300
	Depreciation		74,200
	Other operating expenses		20,900
Total operating expenses					1,133,300
Income from operations					1,254,957
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					1,260,857
Income tax expense					378,257
Net income					$882,600

(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).)

Answer 1

Statement of cash flow
Cash from operating activities
Net income for the year					882,600
adjustments to recocile net income to
net cash from operating activities
Depreciation expense				74,200
gain on sale of Equipment				-18,100
inrease in accounts receivable				-136500
increase in work in process				-705,000
increase in inventory				-9,300
increase in prepaid expense				-33,800
increase in accounts payable				28700
increase in income taxes payable				20800
increase in wages payable				2400
increase in interest payable				1,100
decrease in other current liabilities				-500	-776,000
net cash from operating activities					106,600
Cash from investing activities
cash from sale of Equipment				24,200
Purchase of Equipment for cash				-209,100
net cash used by investing activities					-184,900
Cash from financing activities
cash from notes payable				142,000
Cash from revolving bank loan payable				14,900
Cash from financing activities					156,900
net increase in cash					78,600
cash at the beginning of the year					751,300
cash at year end					829,900