Reference no: EM131988440

Arborista - Cash Flows, IS and BS Case Study

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 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.

Arborista hired two employees to do the planting: Frank and Franc¸ois. Frank is extremely knowledgeable, but a bit taciturn. Franc¸ois 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, Franc¸ois 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 Franc¸ois) 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 Franc¸ois 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 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 Franc¸ois 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 Franc¸ois 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. Franc¸ois 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?