On October 1, 2018, Elise Pulito opened Tree City Cafe, Inc. Pulito is now at a crossroads. The October financial statements paint a glowing picture of the business, and Pulito has asked you whether she should expand the business. To expand the business, she wants to be earning net income of $10,000 per month and have total assets of $50,000. Pulito believes she is meeting both goals.

To start the business, Pulito invested $25,000, not the $15,000 amount reported as “Common stock” on the balance sheet. The business issued $25,000 of common stock to Pulito. The bookkeeper “plugged” the $15,000 “Common stock” amount into the balance sheet to make it balance. The bookkeeper made some other errors, too. Pulito shows you the following financial statements that the bookkeeper prepared:

Requirement 
1. Prepare corrected financial statements for Tree City Cafe: single-step Income Statement, Statement of Retained Earnings, and Balance Sheet. Then, based on Pulito’s  goals and your corrected statements, recommend to Pulito whether or not she should  expand the coffee shop.

Transcribed Image Text:

A1 Tree City Cafe, Inc. Income Statement Month ended October 31, 2018 2 Revenue: $25,000 3,000 Investments by owner 3 Unearned banquet sales revenue 4 $28,000 6 Expenses: Wages expense Rent expense Dividends $ 5,000 4,000 3,000 1,000 9. 10 Depreciation expense-fixtures 11 12 Net income 13,000 $ 15,000 13 A1 Tree City Cafe, Inc. Balance Sheet October 31, 2018 Assets Liabilities $ 8,000 Accounts payable 1,000 Sales revenue 1,000 Accumulated depreciation- 5,000 12,000 24,000 4,000 Common stock $55,000 $ 7,000 32,000 3 Cash 4 Prepaid insurance 5 Insurance expense 6 Food inventory 7 Cost of goods sold (expense). 8 Fixtures (tables, chairs, etc.) 9 Dishes and silverware 10 fixtures 1,000 40,000 Stockholders' Equity 15,000 $55,000 11