All day donut incorporated their business on January 1,2015, with an initial sto

Question

All day donut incorporated their business on January 1,2015, with an initial stock offering of 1,200 shares of $2.75 par common stock. The owner needs to purchase more baking equipment for the expanding business. She has visited the local bank and was told that she needed to submit financial statement for the first five months of 2015 using accrual accounting. You have received the following information and will need to prepare an income statement, balance sheet and statement of retained earnings.

1. The check register showed the following 2015 deposits through May 31:

Sales of 1,200 shares of common stock at par =???

Cash Sales = $49,870.

Rebates from purchases of baking materials =$160.

Collections on credit sales =$5,390.

Bank loan proceeds = $3,400.

2. The following amounts were disbursed through May 31, 2015:

Baking materials (inventory purchases) = $15,800.

Rent =$3,300.

Salaries and wages = $9,750.

Maintenance = $190. Utilities = $4,260.

Insurance Premium = $3,456.

Equipment = $3,800.

Principle and interest payments on existing bank loan = $255.

Advertising = $472.

3. Unpaid invoices at May 31, 2015 were as follows:

Baking Materials = $456.

Utilities = $279.

4. Customer records showed uncollected sales of $4,946 at May 31, 2015.

5. Baking materials costing $1,940 were on hand at May 31, 2015.

6. The note payable is dated January 1, 2015. It charges a simple interest rate of 10% and requires quarterly payments consisting of equal principal payment plus accrued interest since the last payment. (Payments are due on April 1, July 1, October 1, and January 1. And, the note is due on 12/31/19--5 years)

7. The owner draws a salary of $750 on the last day of the month. The other employees had been paid through Friday May 22, 2015 and earn $60 per day for a five day work week. The employees are paid every other Friday. 8. The loan proceeds from 1/1/15 were used to purchase equipment on February 8, 2015. The equipment has an estimated life of 5 years (Zero salvage value) and will be depreciated using the straight-line method.

9. Rent was paid for six months on 1/1/2015.

10. A one-year insurance policy was purchased on 3/1/2015.

11. All day donut will be assessed a 30% income tax rate.

12. The owner will receive a bonus of 8% on pretax and prebonus income to be paid on June 30, 2015.

13. The owner declares a 4% dividend on the 5/31/15 pretax and prebonus income which will be paid on July, 2015.

REQUIRED:

1. Prepare all necessary journal entries including cash, adjusting, and closing entries. All Day Donut uses the periodic inventory method where all purchases of inventory are recorded in the purchases account.

2. Prepare an accrual based multiple step income statement for the first five months ending May 31, 2015, a classified balance sheet and a statement of retained earnings as of May 31, 2015.

3. Attach all calculations to support the amounts on the financial statements.

4. Prepare any related footnotes that are necessary for either financial statement.

Explanation / Answer

Journal Entries:

Date Particulars Debit Credit May 31 Bank 62120        Share Capital 3300        Sales 49870        Accounts Payable 160        Accounts Receivable 5390        Bank loan 3400 May 31 Accounts Payable 15800 Rent 3300 Salaries and Wages 9750 Maintenance 190 Utilities 4260 Insurance Premium 3456 Equipment 3800 Principal and interest payment 255 Advertising 472        Bank 41283          

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