Question

Tree Gals, Inc. is a small nursery business that specializes in planting trees and shrubs for homeowners. They are a brand-new business, but have several years of experience in the industry. Tree Gals obtained start-up capital from family members in exchange for ownership interest in the company. On December 1, a total of $65,000 was raised by issuing 10,000 shares of stock. An additional $30,000 was borrowed from their hometown bank, also on December l. 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 l, Tree Gals took delivery of, and began using in the business, two previously owned Ford F-250 pick-ups for which it paid cash of $21,000 each. These trucks are expected to last for five more years, and the best guess is that each will be worth $6,000 at the end of the five-year period. Tree Gals hired two employees to do the planting: Anne and Deborah. Anne is extremely knowledgeable, but a bit taciturn. Deborah is generally ebullient and has a lovely accent, and so her services were in high demand by the customers of her former employer. As a result of her popularity, Deborah negotiated a deal with Tree Gals that she will be paid in advance for every job (i.e., at the time the job is scheduled). Anne is happy to follow the more generally accepted method of being paid after she does the work. The employees furnish their own tools (i.e., shovels and picks). Tree Gals decides to charge $75 for planting each tree. The worker planting the tree (i.e., Anne or Deborah) will receive $20 per tree as her wage. On December 18, two clients came into the office to arrange to have trees planted on their property. The first client, Ms. Himantnans, 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 Anne do the planting, as she had heard Deborah was the chatty type and she did not want to pay someone to chat. In addition, she insisted that Anne must arrive at her house before the clock struck 8:00 a.m., or the order was cancelled. Finally, Ms. Himantnans insisted that she be billed for the job and allowed to pay in three weeks, The second client, Ms. Favored, 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 Deborah do the work, as she had heard wonderful things about her charming manner from her friend. Ms. Favored insisted on paying in advance, and immediately wrote a check for the total amount. Tree Gals scheduled Deborah to do the work in four weeks and, per their agreement, paid her immediately. Anne arrived at Ms. Himantnans's home at 7:59 a.m. on December 19 and completed the planting to her satisfaction. Her next payday is January 5. Ms. Himantnans paid promptly on January 8. Deborah performed the work for Ms. Favored on January 15. Both customers promised to recommend Tree Gals, Inc. to their friends. Required Prepare a balance sheet, income statement, and statement of cash flows (using the direct method) as of December 31.

Answer 1

Cash	65000
To common stock		65000
Cash	30000
To 6% bank loan		3000
Ford F trucks	42000
To cash		42000
Depreciation expense	500
To accumulated depreciation		500
Accounts receivable	1500
To Service revenue		1500
Salaries expense	400
To salaries payable		400
Cash	2250
To unearned service revenue		2250
Advance salary	600
To cash		600
Interest expense	150
To accrued interest		150

Income statement
Service revenue	1500
Less: costs
Salaries expense	400
Depreciation expense	500
interest expense	150
Total expenses	1050
Profit	450
Balancesheet
Cash	54650
Accounts receivable	1500
Advance salary	600
total current assets	56750
Ford F trucks	42000
Accumulated depreciation	500
Net Trucks	41500
Total assets	98250
Liabilities
Salaries payable	400
Unearned service revenue	2250
Accrued interest	150
total current liabilities	2800
6% bank loan	30000
Tota liabilities	32800
Equity
Common stock	65000
Retained earnings	450
Total equity	65450
liabilities+equity	98250

Cash flow statement
Cash flow from operating activitites
Advance from customers	2250
Advance salary paid	-600
Net cash flow from operating	1650
Cash flows form investing activities
Truck purchase	-42000
Net cash flows from investing activities	-42000
Cash flow from financing activites
Common stock issued	65000
Bank loan availed	30000
Net cash flows from financing activites	95000
Net change in cash flow	54650
Beginning balance	0
End balance	54650