Question

Donald’s Juice Shop had the following balances in its ledger at 30 June 2020.

Account	Amount ($)
Cash at Bank	$48 724
Accounts Receivable	$2 05 056
Inventory	$2 91 200
Prepaid Insurance	$15 744
Office Supplies on Hand	$8 736
Furniture & Fixtures	$1 06 080
Accumulated Depreciation – Furniture & Fittings	$29 120
Delivery Equipment	$1 24 800
Accumulated Depreciation – Delivery Equipment	$49 920
Accounts Payable	$72 072
Loan Payable	$3 12 000
Donald, Capital	$1 32 284
Donald, Drawings	$75 240
Sales	$19 22 800
Sales Returns & Allowances	$26 664
Discount Allowed	$18 200
Cost of Sales	$10 99 488
Freight In	$24 960
Discount Received	$22 464
Sales Salaries Expense	$1 82 208
Delivery Expense	$48 800
Advertising Expense	$71 760
Rent Expense	$76 400
Office Salaries Expense	$90 000
Electricity Expense	$26 600

Donald’s Juice Shop financial year ends on 30 June. During the year the accountant prepared monthly statements using worksheets, but no adjusting entries were made in the journals and ledgers. Data for the year-end adjustments are as follows.

1. Expired insurance, 30 June 2020, $2624.
2. Office supplies on hand, 30 June 2020, $4088.
3. Depreciation expense for year, furniture and fixtures, $9640.
4. Depreciation expense for year, delivery equipment, $26 460.
5. Sales salaries payable but unrecorded, $6400.
6. Office salaries payable but unrecorded, $1760.

Required

1. Prepare a worksheet for the year ended 30 June 2020.
2. Prepare an income statement for the year ended 30 June 2020.
3. Prepare a balance sheet as at 30 June 2020.
4. Make the necessary adjusting entries.
5. Make the closing entries.
6. Make any necessary reversing entries.
7. Do you think Donald’s Juice Shop is in good financial position? Analyse and explain. (1500 words)

Answer 1

	Unadjusted trail balance		Adjustments		Adjusted trail balance		Income statement		Balance sheet
	Debit	Credit	Debit	Credit
Cash at Bank	48724				48724				48724
Accounts Receivable	205056				205056				205056
Inventory	291200				291200				291200
Prepaid Insurance	15744			2624	13120				13120
Office Supplies on Hand	8736			4648	4088				4088
Furniture & Fixtures	106080				106080				106080
Accumulated Depreciation – Furniture & Fittings		29120		9640		38760				38760
Delivery Equipment	124800				124800				124800
Accumulated Depreciation – Delivery Equipment		49920		26460		76380				76380
Accounts Payable		72072				72072				72072
Loan Payable		312000				312000				312000
Donald, Capital		132284				132284				360936
Donald, Drawings	75240				75240				75240
Sales		1922800				1922800		1922800
Sales Returns & Allowances	26664				26664		26664
Discount Allowed	18200				18200		18200
Cost of Sales	1099488				1099488		1099488
Freight In	24960				24960		24960
Discount Received		22464				22464		22464
Sales Salaries Expense	182208		6400		188608		188608
Delivery Expense	48800				48800		48800
Advertising Expense	71760				71760		71760
Rent Expense	76400		1760		78160		78160
Office Salaries Expense	90000				90000		90000
Electricity Expense	26600				26600		26600
Insurance expense			2624		2624		2624
Office supplies expense			4648		4648		4648
Depreciation expense furniture and fixtures			9640		9640		9640
Depreciation expense delivery equipment			26460		26460		26460
Sales salary payable				6400		6400				6400
Office salary payable				1760		1760				1760
	2540660	2540660	51532	51532	2584920	2584920	1716612	1945264	868308	868308
Net income								228652		0

Income statement
Sales	1922800
Less: sales returns and allowance	-26664
Less:Discount Allowed	-18200	1877936
Cost of Sales	-1099488
Freight In	-24960	-1124448
Gross Margin		753488
Less: operating expenses
Sales Salaries Expense	188608
Delivery Expense	48800
Advertising Expense	71760
Rent Expense	78160
Office Salaries Expense	90000
Electricity Expense	26600
Insurance expense	2624
Office supplies expense	4648
Depreciation expense furniture and fixtures	9640
Depreciation expense delivery equipment	26460	547300
Add: operating income
Discount Received		22464
Net income		228652

Balancesheet
Assets
Current assets
Cash at Bank	48724
Accounts Receivable	205056
Inventory	291200
Prepaid Insurance	13120
Office Supplies on Hand	4088
Total current assets	562188
PP&E
Furniture & Fixtures	106080
Accumulated Depreciation – Furniture & Fittings	-38760
Delivery Equipment	124800
Accumulated Depreciation – Delivery Equipment	-76380
Total PP&E	115740
Total assets	677928
Liabilities
Current liabilities
Accounts Payable	72072
Sales salary payable	6400
Office salary payable	1760
Total current liabilities	80232
Loan Payable	312000
Total liabilities	392232
Shareholders' equity
Donald, Capital	285696
Total equity	285696
Total liabilities+equity	677928

Journal entries
Insurance expnese	2624
To prepaid insurance		2624
Office supplies expense	4648
To office supplies on hand		4648
Depreciation on furniture and fixtures	9640
Depreciation on delivery equipment	26460
To Accumulated Depreciation – Furniture & Fittings		9640
To Accumulated Depreciation – Delivery Equipment		26460
Sales salaries expense	6400
To Sales salary payable		6400
Office salaries expense	1760
To office salary payable		1760
Capital	75240
To Drawings		75240
Net income	228652
To capital		228652

Financial position of any company can be evaluated by analysis of it's financial statements. Various financial ratios help in evaluating the solvancy and liquity of the company

We can take account of the company's current ratio to evaluate its liquidity. Here the current ratio of the shop (i.e. current assets/current liabilities) is 7 meaning the firm is highly liquid which means the firm has ideal assets which are either unutilised or non-moving. The firm is not operating at its full capacity. Where as its quick ratio is 3.38 which is avergae. Hence firm has ideal inventory which it is unable to convert into cash

To evaluate firm's long term solvancy debt equity ratio or debt service coverage ratios are taken into account for analysis. The firms debt to equity ratio is 1.37 that means the firm has excess of debt than it's equity. The firm is dependent on outside funds than its own contribution