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

4. Was PetGo successful during its first month of operation? Explain

5. PetGo was doing pretty well for 2017. During the year, PetGo sold $50,000 gift card to customers and recorded $50,000 sales revenue. Was PetGo doing the correct accounting treatment? Explain