Henrietta’s Pine Bakery Background You are an Analyst for the professional servi
ID: 2419365 • Letter: H
Question
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.
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
Required
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.
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
Explanation / Answer
Date accounts Title Dr Cr 1-Nov Prepaid Insurance 9000 Insurance Expense 9000 31-Dec Insurance Expense(9000/12*2) 1500 Prepaid Insurance 1500 Prior Period Expenses 3400 Prepaid Insurance 3400 31-Dec salariers Expenses 900 Salaries(Wages) Payable 900 29-Dec Accounts Receiveble $1,089 food revenue 1089 30-Dec Retained Earnings $5,000 Dividend Payable $5,000 31-Dec Interest Expenses (220000*.08*10/12) 14667 Accured Interest 14667 Depricaiation on Computer 6000 Depreciation on Equiupment 9000 Depreciation of furniture & Fixture 7500 Accumulated Depricaiation on Computer 6000 Accumulated Depreciation on Equiupment 9000 AccumulatedDepreciation of furniture & Fixture 7500 Amount in $ Adjusted trial balance Account Name Debit Credit Cash $35,000 Accounts Receivable 6,689 Food Inventory 21,000 Merchandise Inventory 62,500 Prepaids (9000-1500) 7,500 Computers 30,000 Accumulated Amortization – Computers 18,000 Bakery Equipment 90,000 Accumulated Amortization – Bakery Equipment 27,000 Furniture and Fixtures 150,000 Accumulated Amortization – Furniture and Fixtures 22,500 Accounts Payable 18,000 Salaries payable 900 Interest Payable 14667 Dividend Payable 5000 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 Expense 240,000 Internet Expense 54,000 Electricity Expense 65,000 Telephone Expense 20,000 Interest Expense 14667 Salary Expense 200,900 Insurance Expense 1,500 Prior Period expense 3,400 Supplies Expense 8,000 Depreciation Expense 22500 Rent Expense 60,000 Total 1,092,656 1,092,656 Income statement Food Revenue Internet Revenue Merchandise Revenue Food Expense 240,000 Internet Expense 54,000 Electricity Expense 65,000 Telephone Expense 20,000 Interest Expense 14667 Salary Expense 200,900 Insurance Expense 1,500 Prior Period expense 3,400 Supplies Expense 8,000 Depreciation Expense 22500 Rent Expense 60,000 Net Income Balance sheet as on 31 Dec Account Name Amout Cash 35000 Accounts Receivable 6689 Food Inventory 21000 Merchandise Inventory 62500 Prepaids (9000-1500) 7500 Computers 30000 Accumulated Amortization – Computers -18000 Bakery Equipment 90000 Accumulated Amortization – Bakery Equipment -27000 Furniture and Fixtures 150000 Accumulated Amortization – Furniture and Fixtures -15000 Total assets 402689 Accounts Payable 18000 Salaries payable 900 Interest Payable 14666.66667 Dividend Payable 5000 Long-term Loan 220000 Common Shares 50000 Retained Earnings 26,622 Total Liabilities & Equity 402689
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