Henrietta’s Pine Bakery Background You are an Analyst for the professional servi
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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:
o 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.
o Geoff has a note that he owed $900 in wages to his employees for the period ending December 31st.
o 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.
o 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.
o Henrietta’s declared a dividend of $5,000 on December 30th. o 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
o Furniture and fixtures: 20 years
o 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
Retailed 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
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
Retailed 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
The first step is to prepare an adjusted Trial Balance as below:
adjustments Adjusted Trial Balance Account Name Debit Credit debit credit Debit Credit cash 35000 35000 accounts receivable 5600 1089 6689 food inventory 21000 21000 merchandise inventory 62500 62500 prepaids 3400 7500 3400 7500 computers 30000 30000 accumulated amort-computers 12000 6000 18000 bakery equipment 90000 90000 accumulated amort-bakery eqpmt 18000 9000 27000 furniture & fixtures 150000 150000 accumulated amort-furniture 15000 7500 22500 accounts payable 18000 18000 accrued liabilities 1700 1700 interest payable 17600 17600 dividend payable 5000 5000 long term loan 220000 220000 common shares 50000 50000 retained earnings 22000 22000 food revenue 468500 1089 469589 internet revenue 127000 127000 merchandise revenue 103000 103000 food expense 240000 240000 internet expense 54000 54000 electricity exp 65000 400 65400 telephone exp 20000 400 20400 interest exp 17600 17600 salary exp 200000 900 200900 insurance exp 9000 3400 7500 4900 supplies exp 8000 8000 depreciation exp 22500 22500 rent exp 60000 60000 dividend expense 5000 5000 1053500 1053500 58789 58789 1101389 1101389Related Questions
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