Question

Arborista, Inc. plants trees and shrubs for homeowners. The trees are

purchased from and delivered by a sister company, Trees-R-Us, Inc.;

Arborista specializes in planting. Arborista obtained capital from family

members in exchange for common stock, which provides an ownership

interest to the family members. On December 1, a total of $50,000 was

raised by issuing 10,000 shares of stock.

An additional $20,000 was borrowed from their hometown bank, also on

December 1. The principal must be repaid at the end of two years, along

with 6 percent interest annually, which accrues as time passes.

Also on December 1, Arborista took delivery of, and began using in the

business, two previously owned Ford F-250 pick-ups for which it paid cash

of $7,000 each. These trucks areexpected to last for five more years, and

the best guess is that each will be worth $1,000 at the endof the five-year

period.

Arborista hired two employees to do the planting: Frank and Francois.

Frank is extremely knowledgeable, but a bit taciturn. Francois is generally

ebullient and has a lovely accent, and so his services were in high demand

by the customers of his former employer. As a result of his popularity,

Francois negotiated a deal with Arborista that he will be paid in advance for

every job (i.e., at the time the job is scheduled). Frank is happy to follow the

more generally accepted method of being paid after he does the work. The

employees furnish their own tools (i.e., shovels and picks).

Arborista decides to charge $75 for planting each tree. The worker planting

the tree (i.e., Frank or Francois) will receive $20 per tree as his wage.

On December 18, two clients came into the office to arrange to have trees

planted on their property. The first client, Ms. Imaprimadonna, was

insistent that her 20 trees/shrubs be planted the next day, as it was critical

that the work be completed before the holidays. Furthermore, she insisted

that Frank do the planting, as she had heard Francois was the chatty type

and she did not want to pay someone to chat. In addition, she insisted that

Frank must arrive at her house before the clock truck 8:00 a.m., or the

order was cancelled. Finally, Ms. Imaprimadonna insisted that she be billed

for the job and allowed to pay in three weeks.

2

The second client, Ms. Bonappetit, wanted 30 trees/shrubs planted. She

was flexible about when the work would be completed, as long as it was

scheduled after the first of the year. However, she did ask that Francois do

the work, as she had heard wonderful things about his charming manner

from her friend. Ms. Bonappetit insisted on paying in advance, and

immediately wrote a check for the total amount. Arborista scheduled

Francois to do the work in four weeks and, per their

agreement, paid him immediately.

Frank arrived at Ms. Imaprimadonna’s home at 7:59 a.m. on December 19

and completed the planting to her satisfaction. His next payday is January

5. Ms. Imaprimadonna paid promptly on January 8. Francois performed

the work for Ms. Bonappetit on January 15. Both customers promised to

recommend Arborista, Inc. to their friends.

Required

Prepare a Balance Sheet, Income Statement, and Statement of Cash Flows

as of December 31.

Answer 1

The answer to this question is attached herewith in the pictures.