Question

BA211 – Financial Accounting Project:

Valentine’s Day Chocolate

Prelude, January 14^th:

Cupid and his family, as is their regular routine, visit the local farmers’ market on their weekly shopping trip. Deborah, a local candy-producer and friend of Cupid’s family, is selling her candy at the market. Cupid tells Deborah how much he likes her candy.

Deborah knows that Cupid is a budding entrepreneur and asks if he will try selling her boxed Valentine’s chocolates at the Food & Gift Festival on February 10^th, 11^th, & 12^th.   Deborah says that she will be out of town most of that weekend and wants Cupid to sell the product to keep building awareness of her candy products. She also says that she has a booth reservation and he would have to pay the Food & Gift Festival show management a $300 booth fee on February 10^th along with a refundable $30 clean-up fee.   Deborah gives the following information:

• Boxed Valentine chocolate sells at a market price of $9.00 each
• Deborah can prove that her chocolate has Fair Trade Certification
• Cupid can buy boxed chocolate from her for $5.00 each
• Boxed chocolate inventory is enough to cover the needs of Food & Gift Festival
• Cupid can keep any of the net income from the festival
• Deborah will return on the afternoon of February 12^th and expects to be paid then for inventory acquired & sold from her storage unit!

Cupid agrees to Deborah’s offer and decides to sell boxed Valentine chocolates at the Food & Gift Festival. Cupid asks his sister, Ginger, to help in the booth and he would pay her $30 a day. Ginger agrees.

Friday, February 10^th:

Prior to coming to the show, Cupid took $500 out of his secret stash of personal savings and he acquired 120 boxes from Deborah’s storage unit. Cupid sets up the stand and pays the show manager, Kavinda, $330 in cash.

At 2:30 in the afternoon, Mr. Lupercalia, prepays $180 to buy 20 boxes that Cupid will have ready for pick-up on Sunday morning.

Walk-up sales are good and they sell 105 boxes in this manner by end of the day.

Ginger, who worked hard, mentions that her wage of $30 per day is too low. Cupid and Ginger agree that $60 a day is fair and that she will be paid at the end of the festival.

Saturday, February 11^th:

Before the show opens, Cupid retrieves 350 boxes from the storage unit because Saturday is believed to be the big sales day.

The ‘Young Professionals’ club asks Cupid if they could buy 40 boxes and pay him tomorrow, Cupid agrees.

Ms. James of Fair World Trade Coalition comes by on Saturday representing her charitable organization that tries to make holidays more bearable for the less fortunate in Oregon. Ms. James, seeing the Fair Trade Certification sign, asks Cupid if he would consider making a donation of boxed chocolate to this worthy cause. After a brief pause, Cupid says yes and gives Ms. James 20 boxes of chocolate. (Cupid still has to pay for inventory used, no matter what the purpose.)

Walk-up sales amounted to 277 units sold for the day.

Sunday, February 12^th:

Before the show opens, Cupid retrieves 200 boxes from the storage unit.

Mr. Lupercalia picks up his boxes and the Young Professionals pay Cupid.

Walk-up sales amounted to 207 units sold for the day. Kavinda comes by, sees a clean booth, and returns the $30 cleaning fee.

Ginger mentions that sales today were about twice Friday’s sales and she wants a bonus, after haggling with her brother, they agree to a $60 bonus-payment. Cupid pays Ginger all amounts owed.

Deborah stops by and is amazed by the amount of sales made. Cupid pays Deborah for the inventory retrieved less what she takes back with her. Cupid recovers his original cash-injection by withdrawing $500.

Required:

Prepare, in good form, a classified balance sheet and an income statement at the end of each day (February 10^th, 11^th & 12^th) using accrual accounting. There are various examples of statements made in good form in your textbook. Treat each day as a separate accounting period. Assume all transactions are material.

Answer 1

Inventory: 10th Feb 11th Feb 12th Feb Op bal Purchases Less: Sales 15 28 120 350 200 (105) (317) (227) Less: Donation (20) cI Bal (in units) Cost per unit Closing Inventory cost 15 28 1 5 $ $ 5 140 75 5 Friday, Feb 10th Sunday, Feb 12th Saturday, Feb 11th Inventory To Accounts Payable Cash account Inventory To Accounts Payable $ $1,000 500 1,750 To Capital account $ $ $1,000 500 1,750 Accounts receivable $ Prepayments To Sales $ 180 Inventory To Accounts Payable 600 360 To Sales $600 $ 180 360 Booth fee expense Cost of Goods sold To Inventory Cost of Goods sold $ 100 $ $ 300 200 Deposit To Cash To Inventory $ $ 200 30 100 $ 330

$ 2,493 Cash Cash To sales $1,863 To sales $ $ 1,863 Cash 180 2,493 To Prepayments $ 180 $ 1,385 Cost of Goods sold $360 Cash To Inventory $ $ $360 Cash To Accounts Receivable 945 1,385 To sales 945 Donation expense Cost of Goods sold $1,035 100 To Inventory Cost of Goods sold To Inventory $ 1,035 $ $ 525 100 To Inventory $ 525 Salary To Accrued salary Cash To Deposit $ 30 $ 60 $ 30 Salary To Accrued salary $ $ 60 60 $ 60 Salary Bonus To Accrued salary $ 60 $ 60 $ 120 Accrued Salary To Cash $ 240 240 Accounts Payable $ 5 To Inventory $ n

Accounts Payable $3,345 $ 3,345 To Cash Drawings To Cash $500 $ 500 Income Statement Income Statement Income Statement Sales Sales Sales $2,043 945 2,853 Less: expenses Less: expenses Less: expenses Cost of Goods sold Cost of Goods sold Booth fee expense Cost of Goods sold Donation expense $ (1,585) $ $(1,135) $ (525) (300) Bonus $ $ (100) (60) (60) Salary Net income Salary Net income $ Salary Net income (60) (60) 60 1,108 788

Balance Sheet Balance Sheet Balance Sheet Assets Cash Assets Cash Inventory Accounts Receivable Assets Amount Amount Amount $ 1,956 Cash $ 1,295 $3,788 Inventory $ Inventory 75 140 Deposit $ $ Accounts Receivable 30 360 Deposit Deposit 30 $ 1,400 $ 1,956 $ 4,318 Liabilities & Equity Accounts payable Liabilities & Equity Accounts payable Prepayments Accrued salary Capital Less: Drawings Liabilities & Equity Accounts payable Prepayments Accrued salary Capital $ 2,350 600 Prepayments Accrued salary $ 180 180 $ 60 120 Capital $ 500 $ 500 500 $ (500) $ 1,956 Net income Net income $ $ 60 Net income 1,168 $ 1,400 1,956 4,318