Question
In: Accounting
Henrietta’s Pine Bakery Background You are an Analyst for the professional service firm, FINACC LLP. Your...
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.
Activity/Competencies Demonstrated
% of
Final Grade
1.
Identification and Analysis of Issues (100%)
a.
Adjusting Entries
/17
b.
Adjusting Trial Balance
/10
c.
Balance Sheet
/28
d.
Statement of Operations
/13
e.
Statement of Retained Earnings
/6
f.
Closing Entries
/16
g.
Post-Closing Trial Balance
/10
Total
/100
Solutions
Expert Solution
|
Journal Entries |
|||
|
Date |
Description |
Debit |
Credit |
|
1 |
Prepaid Insurance |
4,100 |
|
|
To Insurance Expense |
4,100 |
||
|
2 |
Salary |
900 |
|
|
To Accrued Liabilities |
900 |
||
|
3 |
Interest Expense |
17,600 |
|
|
To Interest Payable |
17,600 |
||
|
4 |
Accounts Receivable |
1,089 |
|
|
To Food Revenue |
1,089 |
||
|
5 |
Dividend |
5,000 |
|
|
To Dividend Payable |
5,000 |
||
|
6 |
Depreciation |
22,500 |
|
|
To Accumulated Amortization- Computer |
6,000 |
||
|
To Accumulated Amortization- Bakery Equip. |
9,000 |
||
|
To Accumulated Amortization- Furn & Fixt |
7,500 |
||
|
7 |
Telephone Expense |
400 |
|
|
Electricity Expense |
400 |
||
|
To Accrued Liabilities |
800 |
| Adusted Trial Balance as on 31 Dec 2015 | ||
| 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 – Computers | 18,000 | |
| Bakery Equipment | 90,000 | |
| Accumulated Amortization – Bakery Equipment | 27,000 | |
| Furniture and Fixtures | 1,50,000 | |
| Accumulated Amortization – Furniture and Fixtures | 22,500 | |
| Accounts Payable | 18,000 | |
| Accrued Liabilities | 1700 | |
| Interest Payable | 17600 | |
| Dividend Payable | 5000 | |
| Long-term Loan | 2,20,000 | |
| Common Shares | 50,000 | |
| Retained Earnings | 22,000 | |
| Food Revenue | 4,69,589 | |
| Internet Revenue | 1,27,000 | |
| Merchandise Revenue | 1,03,000 | |
| Food Expense | 2,40,000 | |
| Internet Expense | 54,000 | |
| Electricity Expense | 65,400 | |
| Telephone Expense | 20,400 | |
| Interest Expense | 17600 | |
| Salary Expense | 2,00,900 | |
| Insurance Expense | 4,900 | |
| Supplies Expense | 8,000 | |
| Depreciation Expense | 22500 | |
| Dividend | 5000 | |
| Rent Expense | 60,000 | |
| Total | 11,01,389 | 11,01,389 |
| Income Statement for the year Ended 31 Dec 2015 | ||
| Description | Amount | Amount |
| Revenue | ||
| Food Revenue | 4,69,589 | |
| Internet Revenue | 1,27,000 | |
| Merchandise Revenue | 1,03,000 | 6,99,589 |
| Less Operating Expenses | ||
| Food Expense | 2,40,000 | |
| Internet Expense | 54,000 | |
| Electricity Expense | 65,400 | |
| Telephone Expense | 20,400 | |
| Interest Expense | 17600 | |
| Salary Expense | 2,00,900 | |
| Insurance Expense | 4,900 | |
| Supplies Expense | 8,000 | |
| Depreciation Expense | 22,500 | |
| Rent Expense | 60,000 | 6,93,700 |
| Net operating Income | 5,889 | |
| Dividend | 5,000 | |
| Net Income | 889 | |
| Balance Sheet As on 31 Dec-2015 | |||
| Description | Amount | Description | Amount |
| Accounts Payable | 18,000 | Cash | 35,000 |
| Accrued Liabilities | 1700 | Accounts Receivable | 6,689 |
| Interest Payable | 17600 | Food Inventory | 21,000 |
| Dividend Payable | 5000 | Merchandise Inventory | 62,500 |
| Long-term Loan | 2,20,000 | Prepaids | 7,500 |
| Common Shares | 50,000 | Computers 30000 | |
| Retained Earnings | 22,889 | Less: Accumulated Depreciation 18000 | 12,000 |
| Bakery Equipment 90000 | |||
| Less: Accumulated Depreciation 27000 | 63,000 | ||
| Furniture and Fixtures 150000 | |||
| Less: Accumulated Depreciation 22500 | 1,27,500 | ||
| 3,35,189 | 3,35,189 | ||
| Statement of Retained earnings | |
| Description | Amount |
| Opening Balance | 22,000 |
| Add: Operating Income | 5,889 |
| 27,889 | |
| Less: Dividend | 5,000 |
| Closing Balance | 22,889 |
| Closing Journal Entries | |||
| Date | Description |
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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.
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business solutions for different clients. Given the outstanding
feedback you received on your first engagement working for Big
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requested your support on a compilation engagement.
Additional Information
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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.
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requested your support on a compilation engagement.
Additional Information
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business solutions for different clients. It is your first day on
the job and a Manager in the Consulting area asks you for some help
with an investment decision for one of your large clients, Big
Spenders Inc. Ready to make an impression on your first day, you
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professional service firm, FINACC LLP. Your firm specializes in
providing a wide variety of internal business solutions for
different clients. It is your first day on the job and a Manager in
the Consulting area asks you for some help with an investment
decision for one of your large clients, Big Spenders Inc. Ready to
make an impression on your first day, you start reading the
background information provided by the Manager.
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