In: Accounting
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.
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 |