John Smith established an animal clinic (PetGo) on December 1, 2016, by purchasi

Question

John Smith established an animal clinic (PetGo) on December 1, 2016, by purchasing all of its common stock for $125,000 (no par value). The same day PetGo paid $2,500 to an attorney who prepared its legal documents and filed incorporation documents (Administration Expense); paid $90,000 for medical instruments, furniture, and equipment; and signed a three-year lease on office space for $5,000 per month, payable the first day of each month, and paid that the first month rent. During December 2016, PetGo received $18,500 from clients for office visits, surgery, medical supplies, and drugs. PetGo had billed clients an additional $6,000 for care delivered in December but did not receive payments until January 2017.  During December, PetGo also paid $1,700 for drugs and medical supplies, $500 for office supplies, and $13,750 for wages and benefits. At the end of December, PetGo had $200 drugs and medical supplies and zero office supplies in inventory. PetGo adopts straight-line depreciation method for its fixed assets assuming 10-year useful life and zero salvage value.

Instruction:

1. Prepare an income statement for 2016

2. Prepare a balance sheet as of Dec 31, 2016

3. Calculate PetGo's free cash flow for 2016

Explanation / Answer

Income statement

Balance sheet

Assets

Cash                               $30,050                    Common stock               $125,000

Account receivable             6,000                   Retained earnings                   500

Supplies                                 200

Equipment $90,000

Less: dep           750          $89,250

total assets                    $125,500                   total Equity               $125,500

Cash flow

Net income                                                                                              $500

Add: depreciation                               750

Less: increase in a/c receivable      6000

        supplies                                    200                                              

Ner cash flow from investing activities                                                 ( $4950 )

Net cash paid from investing activites                                                  (90,000)

Net cash inflow from fianaing activities                                              125,000

Net cash                                                                                            $30,050

revenue from services $24,500 less: operating expenses:      Legal fees                                  2,500    Rent                                             5,000     supplies expense                       1,500 office supplies                                500 Depreciation                                  750    wages                                       13,750 $24,000 Net income $500

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