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Waterways Continuing Problem 14

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Waterways Continuing Problem 14

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 CORPORATION—INSTALLATION 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 CORPORATION—INSTALLATION 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 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 Other income Gain on sale of equipment 18,000 — Other expenses Interest expense (12,187 ) — Income before income tax 1,281,954 1,066,515 Income tax expense 384,586 319,955 Net income $897,368 $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 CORPORATION—INSTALLATION 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

% Operating expenses Advertising 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

% Other income Gain on sale of equipment 18,000 —

% Other expenses Interest expense (12,187) —

% Income before income tax 1,281,954 1,066,515

% Income tax expense 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 CORPORATION—INSTALLATION DIVISION
Income Statement

For the Quarter Ending December 31, 2017December 31, 2017For the Year Ending December 31, 2017

Amount Percent 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)

% Income before income tax 1,281,954

% Income tax expense 384,586

% Net income $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

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