Henrietta’s Pine Bakery Background You are an Analyst for the professional servi
ID: 2419440 • 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
1) adjusting journal entries,
2) an adjusting trial balance,
3) the statement of earnings (income statement),
4) statement of financial position (balance sheet), and statement of retained earnings. After you have completed the statements,
5) prepare the closing journal entries and the
6) 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
Dr Cr Cash 9000 To Insurance Expense 9000 Correction Entry Prepaid Insurance 7500 Insurance Expense 4900 To Prepaid Insurance(Previous) 3400 To Cash 9000 Wage 900 To Outstanding Expense 900 (Being Outstanding Wages Recognised) Interest Expense 17600 To Interest Payable 17600 (Being Interest Expense Recognised) Accounts Receivable 1089 To Food Revenue 1089 (Being AR Recognised) Dividend 5000 To Cash 5000 (Being Dividend Paid) Telephone Expenses 400 Utility Expense 400 To Outstanding Expenses 800 (Being outstanding Expenses Recognised) Depreciation 22500 To Accumulated Depreciation on Computer 6000 To Accumulated Depreciation on Equipment 9000 To Accumulated Depreciation on Furniture and Fixuture 7500 (Being Depreciation for the year) Adjusted Trial Balance as on 31 Dec Particulars DR CR Cash 30000 AR 6689 Food Inv 21000 Merch Inv 62500 Prepaid 7500 Comp 30000 Acc Depr 18000 Eqp 90000 Acc Depr 27000 F&F 150000 Acc Depr 22500 AP 18000 Long term Loan 220000 Outstanding Wages 900 Interest Payable 17600 Outstanding Telephone 400 Outstanding Utility 400 Shares 50000 Ret Ern 22000 Food Rev 469589 Int Rev 127000 Mech Rev 103000 Dividend 5000 Insurance Exp 4900 Food Exp 240000 Int exp 54000 Electricity 65400 Telephone 20400 Salary Expense 200900 Depreciation 22500 Supplies 8000 Interest Exp 17600 Rent 60000 1096389 1096389 Statement of Earnings for the Year Ended 31st Dec Food Revenue 469589 Internet Revenue 127000 Merchandising Revenue 103000 Total Revenue 699589 Less:Cost of Goods Sold Food Expense 240000 Internet Expense 54000 294000 Gross Profit 405589 Selling and Administrative Exp Insurance 4900 Electricity 65400 Telephone 20400 Salary 200900 Depreciation 22500 Supplies 8000 Interest Exp 17600 Rent 60000 399700 Net Operating Income 5889 Retained Earnings Statement Opening Balnce 22000 Add: Profit 5889 Less:Dividend -5000 Closing 22889 Balance Sheet as on 31 Dec Share Holders Equity Fixed Assets Common Stock 50000 Computer 30000 Retained Eranings 22889 Less:Acc Depr -18000 12000 Equipment 90000 Long Term Liability 220000 Less:Acc Depr -27000 63000 Furnitures 150000 Current Liabilities Less:Acc Depr -22500 127500 AP 18000 Current Assets Outstanding Wages 900 Cash 30000 Interest Payable 17600 AR 6689 Outstanding Telephone 400 Food Inv 21000 Outstanding Utility 400 Merch Inv 62500 Prepaid 7500 127689 330189 330189 Closing Entries Food Revenue 469589 Internet Revenue 127000 Merchandising Revenue 103000 To Income Summary 699589 Income Summary 693700 To Food Expense 240000 To Internet Expense 54000 To Insurance 4900 To Electricity 65400 To Telephone 20400 To Salary 200900 To Depreciation 22500 To Supplies 8000 To Interest Exp 17600 To Rent 60000 Income Summary 5889 To Retained Earnings 5889 Dividend 5000 To Retained Earnings 5000 Closing Trial Balance Computer 30000 Accumulated Dep-Computer 18000 Equipment 90000 Accumulated Dep-Equipment 27000 Furniture 150000 Accumulated Dep-Furniture 22500 Cash 30000 AR 6689 Food Inv 21000 Merch Inv 62500 Prepaid 7500 AP 18000 Outstanding Wages 900 Interest Payable 17600 Outstanding Telephone 400 Outstanding Utility 400 Long Term Liability 220000 Retained Earnings 22889 Common Stock 50000 397689 397689
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