Question

In: Accounting

Henrietta’s Pine Bakery Background You are an Analyst for the professional service firm, BUSI 1043 LLP....

Henrietta’s Pine Bakery

Background

You are an Analyst for the professional service firm, BUSI 1043 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. Given the outstanding feedback you received on your first engagement working for Big Spenders Inc., a Senior Manager in the Financial Advisory group requested your support on a compilation engagement.

Additional Information

Henrietta’s was established in 1963 when it first opened its doors in Dwight, Muskoka on highway 60. Over the past 50 years, there have been four owners and is currently owned by Carine & Geoff Harris who incorporated and took over the store on January 1, 2013. Their sons, Kyle and Nicholas have been an intricate part of the business from dishwashing to head bakers. Henrietta's has grown over the years with the addition of new items all the time, but the "Sticky Buns and Clouds" remain the most popular items amongst the 150 varieties of breads and pastries.

Henrietta’s runs out of 90 square meters (1,000 share feet) of space. It has one entrance into the bakery and doors leading out to highway 60. Henrietta’s pays $5,000 per month for the rental of the space. Carine and Geoff were able to negotiate with the landlord and were not required to pay the first month’s rend in advance. All of the rental payments are current and up to date. For the last two years, Henrietta’s has had a very reliable accountant prepare its year-end financial statements and everything has been correct. This year, Henrietta’s accountant retired and Geoff did the best he could recording his own financial information. For the information he was not sure about, he kept all of the required supporting documentation. Geoff hired your firm, BUSI 1043 LLP to prepare his financial statements for the year. Geoff supplied you with his unadjusted trial balance and the information in Exhibit I to assist you.

Supplementary Information

The amount currently sitting in prepaids arose due the insurance policy last year. Geoff didn’t know how to correct it, so he left it. This year’s insurance policy was purchased on November 1 for $9,000. The policy runs from November 1 to October 31 of each year.

Geoff has a note that he owed $900 in wages to his employees for the period ending December 31st.

The loan was incurred when the bakery was opened. The loan carried an interest rate of 8%. The interest is payable two months after year end and the principal is due in 2019.

Henrietta’s will sometimes book special events with small organizations that are allowed to pay after the event has taken place. On December 29th, a small company had a gathering at the bakery. The company was billed $1,089 and has 30 days to pay it. Geoff has not yet recorded this in his financial records.

Henrietta’s declared a dividend of $5,000 on December 30th.

Geoff didn’t know how to record amortization for the year and so left it for you to record. Amortization for all assets is charged using a straight-line method by taking the cost of the asset and dividing it by its expected useful life. The assets have expected useful lives as follows:

Computer: 5 years

Bakery equipment: 10 years

Furniture and fixtures: 20 years

The information shows that Henrietta’s owes $400 for a telephone bill and $400 for electricity for December. These amounts have not been recorded yet.

Henrietta's Pine Bakery

Unadjusted Trial Balance

December 31, 2015

Account Name Debit Credit
Cash $35,000
Accounts Receivable 5,600
Food Inventory 21,000
Merchandise Inventory 62,500
Prepaids 3,400
Computers 30,000
Accumulated Amortization – Computers 12,000
Bakery Equipment 90,000
Accumulated Amortization – Bakery Equipment 18,000
Furniture and Fixtures 150,000
Accumulated Amortization – Furniture and Fixtures 15,000
Accounts Payable 18,000
Accrued Liabilities -
Interest Payable
Dividend Payable -
Long-term Loan 220,000
Common Shares 50,000
Retained Earnings 22,000
Food Revenue 468,500
Internet Revenue 127,000
Merchandise Revenue 103,000
Food Expense 240,000
Internet Expense 54,000
Electricity Expense 65,000
Telephone Expense 20,000
Interest Expense 0
Salary Expense 200,000
Insurance Expense 9,000
Supplies Expense 8,000
Depreciation Expense -
Rent Expense 60,000
1,053,500 1,053,500

Based on the information you have prepare the adjusting journal entries, an adjusting trial balance, the statement of earnings (income statement), statement of financial position (balance sheet), and statement of retained earnings. After you have completed the statements, prepare the closing journal entries and the posting closing trial balance. Ensure you show all of your work, and prepare proper journal entries and properly formatted financial statements.

Note to you: Issues are hidden within the case. It is your responsibility to read the case facts and identify the critical issues required for discussion and analysis.

Solutions

Expert Solution

A Adjusting Journal entries
1 Prepaid insurance $9,000
Insurance $9,000
(To record prepaid insurance booked in insurance)
2 Insurance expense $4,900
Prepaid insurance $4,900
(to record insurance expense for the year)
($3400+(9000/12*2months))
3 Salaries and wages expenses $900
Accrued Liabilities $900
(To record wages owed at year end)
4 Interest expense $17,600
Interest payable $17,600
(To record interest on loan @8%)
5 Accounts receivable $1,089
Food Revenue $1,089
(To record revenue for party receivable after 30 days)
6 Retained Earnings $5,000
Dividend Payable $5,000
(To record dividend declared)
7 Depreciation $22,500
Accumulated amortization-computer $6,000
Accumulated amortization-Bakery equipment $9,000
Accumulated amortization-Furniture &Fixtures $7,500
(To record depreciation expense for the year)
8 Telephone expenses $400
Electricity expense $400
Accured Liabilities $800
(To record unpaid telephone and electricity bills)
B Adjusted Trial balance
Account name Debit Credit
Cash $35,000
Accounts receivable $6,689
Food Inventory $21,000
Merchandise Inventory $62,500
Prepaids $7,500
Computers $30,000
Accumulated amortization-computer $18,000
Bakery Equipment $90,000
Accumulated amortization-Bakery Equipment $27,000
Furniture and Fixtures $150,000
Accumulated amortization-Furniture &Fixtures $22,500
Accounts payable $18,000
Accrued Liabilities $1,700
Interest payable $17,600
Dividend Payable $5,000
Long term loan $220,000
Common Shares $50,000
Retained earnings $17,000
Food Revenue $469,589
Internet Revenue $127,000
Merchandise Revenue $103,000
Food expenses $240,000
Internet Expense $54,000
Electricity Expense $65,400
Telephone Expense $20,400
Interest expense $17,600
Salaries expense $200,900
Insurance expense $4,900
Supplies expense $8,000
Depreciarion Expense $22,500
Rent expense $60,000
Total $1,096,389 $1,096,389
C Income Statement
Amount
Food Revenue $469,589
Internet Revenue $127,000
Merchandise Revenue $103,000
Total Revenue $699,589
Expenses:
Food expenses $240,000
Internet Expense $54,000
Electricity Expense $65,400
Telephone Expense $20,400
Salaries expense $200,900
Insurance expense $4,900
Supplies expense $8,000
Depreciarion Expense $22,500
Rent expense $60,000
Total Expenses $676,100
Operating Profit $23,489
Non-operating expenses
Interest expense $17,600
Net Income $5,889
D Statement of Retained Earnings
Retained Earnings, Jan 1, 2018 $22,000
Add: Net income $5,889
Less: Dividend $5,000
Retained Earnings, Dec 31, 2018 $22,889
E Balance Sheet
Balance Sheet
as of December 31, 2018
Assets Amount
Current Assets
Cash $35,000
Accounts receivable $6,689
Merchandise Inventory $62,500
Food Inventory $21,000
Prepaid Insurance $7,500
Total Current Assets $132,689
Fixed Assets
Computers $30,000
Accumulated Amortization-Computers -$18,000 $12,000
Baking Equipment $90,000
Accumulated Depreciation-Baking Equipment -$27,000 $63,000
Furnitures and Fixtures $150,000
Accumulated Depreciation-F&F -$22,500 $127,500
Total Fixed Assets $202,500
Total Assets $335,189
Liabilities
Current Liabilities
Accrued Liabilities $1,700
Accounts Payable $18,000
Dividend Payable $5,000
Interest Payable $17,600
Total Current Liabilities $42,300
Long term Liabilities
Long term Loan $220,000
Total Long term Liabilities $220,000
Owners' Equity
Common Stock $50,000
Retained Earnings $22,889 $72,889
Total Liabilities and Owner's Equity $335,189

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