Question

Arborista, Inc 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 common 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 are expected to last for five more years, and the best guess is that each will be worth $1.000 at the end of the five-year period. Depreciation should be recognized at $200 per month. Arborista hired two employees to do the planting: Frank and François. Frank is extremely knowledgeable, but a bit taciturn. François 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, François 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... Frank or François) will receive S20 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 François was the chally 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 struck 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 François 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 François 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 (Preparing your responses in Excel is encouraged, but not required.) 1. Use the financial effects template to record each transaction and necessary adjusting entry that occurred in December. Be sure to label each account within the template. 2. Based on your template transactions prepare an income statement, statement of retained earnings, and balance sheet as of December 31.

Answer 1

Noncash Asset Liabilities + Contributed Earned Capital | + | capital Revenues - Expenses = Net income $50,000 12/1 $20.000 $14,000 $2.250 Date Cash Asset + $50,000 12/1 $20.000 12/ 11 ($14,000) 12/18 $2,250 12/18 ($600) 12/19 12/19 12/31 12/31 Total $57,650 $600 ($1.500) $1.500 (S400) $400 $100 $1.500 ($400) ($100) ($200) S800 $100 $1.500 ($400) ($100) ($200) S800 $200 ($200) $14,000 $20,850 $50,000 $1,500 $700

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Prepare Income statement and balance sheet as follows:

Income statement
Revenue	$1,500
Less: operating expense
Salaries expense	($400)
Interest expense	($100)
Depreciation expense	($200)
Net Income	$800
Balance Sheet
Assets:
Cash assets	$57,650
Noncash assets	$14,000
Total assets	$71,650
Liabilities	$20,850
Contributed capital	$50,000
Earned capital	$800
Toal Liabilities & OE	$71,650