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.

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 in excel.

Answer 1

	JOURNAL ENTRY
	Date	Account Title	Debit	Credit
	Dec.1	Cash	$50,000
		Common Stock		$50,000
	Dec.1	Cash	$20,000
		Loan Payable		$20,000
	Dec.1	Vehicles	$14,000		(2*7000)
		Cash		$14,000
	Dec.18	Cash	$2,250		(30*75)
		Unearned Service Revenue		$2,250
	Dec.19	Accounts Receivable	$1,500		(20*75)
		Service Revenue		$1,500
	Dec.19	Wage expenses	$400		(20*20)
		Wages Payable		$400
	Dec.31	Interest expense	$100		(20000*6%)*(1/12)
		Interest payable		$100
	Dec.31	Depreciation Expense	$200		(14000-(2*1000))/(5*12)
		Accumulated Depreciation		$200
		INCOME STATEMENT
		Service Revenue		$1,500
		Expenses:
		Wage expenses	$400
		Interest expense	$100
		Depreciation Expense	$200
		Total Expense		$700
		Income		$800
		BALANCE SHEET
		Assets:
		Cash	$58,250	(50000+20000-14000+2250)
		Accounts Receivable	$1,500
		Vehicles(at Cost)	$14,000
		Accumulated depreciation	($200)
		Total Assets	$73,550
		Liabilities:
		Unearned Service Revenue	$2,250
		Wages Payable	$400
		Interest Payable	$100
		Loan Payable	$20,000
		Total Liabilities	$22,750
		Shareholders Equity
		Common Stock	$50,000
		Retained earnings	$800
		Total Shareholders Equity	$50,800
		Total Liabilities and Shareholders Equity	$73,550
		CASH FLOW
		Operating Cash Flow:
		Income	$800
		Depreciation (Non Cash expense)	$200
		Accounts Receivable	($1,500)
		Unearned service revenue	$2,250
		Wages Payable	$400
		Interest Payable	$100
		Total Operating Cash Flow	$2,250
		Investment Cash Flow:
		Vehicles	($14,000)
		Total Investing Cash Flow	($14,000)
		Financing Cash Flow:
		Common stock	$50,000
		Loan Payable	$20,000
		Total Financing Cash Flow	$70,000
		TOTAL CASH FLOW	$58,250	(2250-14000+70000)