Question

I just need the closing entries and post closing trial balance for this question.

Henrietta’s Pine Bakery

Background

You are an Analyst for the professional service firm, FINACC 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 rent 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, FINACC 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:

o    Computer: 5 years

o    Bakery equipment: 10 years
o    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.

 

Exhibit I

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 students: 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.

Evaluation

Case Analysis 2 will be marked in its entirety out of 100. The following rubric indicates the criteria students are to adhere to, and their relative weights to the assignment overall. The instructor may also generate a class case discussion, upon which a grade scaling might be deemed appropriate.

 

Answer 1

I have passed journal entries and prepared closing Trial balance as desired by you.