Question

The following are Waterway Corp.’s comparative balance sheet accounts at December 31, 2020 and 2019, with a column showing the increase (decrease) from 2019 to 2020.

COMPARATIVE BALANCE SHEETS
		2020			2019			Increase (Decrease)
Cash		$807,900			$696,100			$111,800
Accounts receivable		1,130,100			1,166,300			(36,200	)
Inventory		1,850,400			1,707,300			143,100
Property, plant, and equipment		3,324,100			2,995,100			329,000
Accumulated depreciation		(1,163,100	)		(1,032,700	)		(130,400	)
Investment in Myers Co.		308,700			277,600			31,100
Loan receivable		250,800			—			250,800
Total assets		$6,508,900			$5,809,700			$699,200
Accounts payable		$1,019,400			$949,200			$70,200
Income taxes payable		30,100			50,300			(20,200	)
Dividends payable		79,800			99,100			(19,300	)
Lease liabililty		389,500			—			389,500
Common stock, $1 par		500,000			500,000			—
Paid-in capital in excess of par—common stock		1,499,000			1,499,000			—
Retained earnings		2,991,100			2,712,100			279,000
Total liabilities and stockholders’ equity		$6,508,900			$5,809,700			$699,200

Additional information:

1.		On December 31, 2019, Waterway acquired 25% of Myers Co.’s common stock for $277,600. On that date, the carrying value of Myers’s assets and liabilities, which approximated their fair values, was $1,110,400. Myers reported income of $124,400 for the year ended December 31, 2020. No dividend was paid on Myers’s common stock during the year.
2.		During 2020, Waterway loaned $289,200 to TLC Co., an unrelated company. TLC made the first semiannual principal repayment of $38,400, plus interest at 10%, on December 31, 2020.
3.		On January 2, 2020, Waterway sold equipment costing $60,500, with a carrying amount of $38,400, for $39,800 cash.
4.		On December 31, 2020, Waterway entered into a capital lease for an office building. The present value of the annual rental payments is $389,500, which equals the fair value of the building. Waterway made the first rental payment of $60,100 when due on January 2, 2021.
5.		Net income for 2020 was $358,800.
6.		Waterway declared and paid the following cash dividends for 2020 and 2019.

		2020		2019
Declared		December 15, 2020		December 15, 2019
Paid		February 28, 2021		February 28, 2020
Amount		$79,800		$99,100

Prepare a statement of cash flows for Waterway Corp. for the year ended December 31, 2020, using the indirect method. (Show amounts that decrease cash flow with either a - sign e.g. -15,000 or in parenthesis e.g. (15,000).)

WATERWAY CORP. Statement of Cash Flows

Answer 1

Cash Flow Statement of Waterway Corporation

     For the Year Ended December 31, 2020

Particulars	Amount	Amount
Cash Flow of Operating Activities
Net Income		$ 358,800
Adjustments;
Loss on sale of equipment	$ ( 1,400)
Depreciation Expanse	$ 152,500
Equity in Earning of Myers Co. ( $ 124,400 * 25 % )	$ (31,100)
Decrease in Accounts Receivable	$ 36,200
Increase in Inventory	$ (143,100)
Increase in Accounts Payable	$ 70,200
Decrease in Income Tax Payable	$ ( 20,200)	$ 63,100
Net Cash Provided by Operating Activities		$ 421,900
Cash Flow from Investing Activities;
Proceeds from sale of equipment	$ 39,800
Loan to TLC	$ ( 289,200)
Principal Recovery of loan Payable	$ 38,400
Net Cash used by investing activities		$ ( 211,000)
Cash Flow From Financing Activities
Dividend Paid	$ ( 99,100)
Net Cash used by financing activities		$ ( 99,100)
Net Result of Cash related transaction		$ 111,800
Add: Cash at the beginning of year		$ 696,100
Cash Balance at the end of the year		$ 807,900

Working Notes;

Calculation of loss/ gain on sale of equipment

Loss / Gain on sale of equipment = Carrying amount of equipment - cash Proceeds .

= $ 38,400 - ( $ 39,800)

= $ (1,400)

Calculation of accumulated depreciation on equipment sold ;

Accumulated Depreciation on equipment = $ 60,500 - $ 38,400 = $ 22,100

Calculation of Depreciation Expanse

Depreciation Expanse = Accumulated Depreciation as on 31st December 2020 + Accumulated Depreciation on equipment sold - Accumulated Depreciation as on 31st December 2019 .

Depreciation Expanse = $ 1,163,100 + $ 22,100 - $ 1,032,700

= $ 152,500