Question

Accrual Accounting and Income 100 APPLY YOUR KNOWLEDGE Serial Case LO 3.4 03-77 Learning Objectives 3, 4: Analyse basic financial statement information) Note: This case is part of The Cheesecake Factory serial case contained in every chapter in this The Cheesecake Factory Incorporated (NASDAQ: CAKE) is publicly held and uses U.S. Generally Accepted Accounting Principles (GAAP) to prepare its financial statements. Its fiscal year-end is the 52. 53week period ending on the Tuesday closest to December 31. In 2016, its fiscal year end was January 3, 2017 Al fiscal year-end, Cheesecake Factory makes several adjusting entries so that its assets. liabilities, income and expenses are recorded properly and in the correct time period. Here is a partial list of some accounts that require adjusting entries: Prepaid Expenses: This current asset could include the cost of supplies used at the restaurants, including napkins, straws, tablecloths, dishes, flatware, and a variety of other items needed to stock its restaurants. The balance of these prepaid expense items at December 29, 2015, was $13,378. A physical count of the prepaid expense items performed on January 3, 2017. revealed that $12,580 of prepaid expense items remained on hand. Assume that purchases of napkins, straws, tablecloths, dishes, flatware, and other items during 2016 totaled $63.500. Prepaid Rent: The Cheesecake Factory rents all of its locations. Some of its leases require payment of the lease in advance. At December 29, 2015, Cheesecake Factory's prepaid rent balance was 55,236. Assume that it paid a total of $47,700 in prepaid rent throughout 2016. An analysis of the prepaid rent lease agreements at the end of 2016 reveals that Cheesecake Factory had $16,072 in prepaid rent as of January 3, 2017. Gin Cards The Cheesecake Factory sells gift cards to customers. As of December 29, 2015, it had S153.629 in outstanding, unredeemed gift cards. Assume that during 2016, it sold S379.000 in gift cards. (When Cheesecake Factory sells a gift card, it increases (debit) Cash and increases (credit) Gin Cards, a current liability.) As of January 3, 2017. Cheesecake Factory had S123.619 in unredeemed gift cards. Salaries and Wages Payable: The balance of Salaries and Wages Payable at December 29, 2015, was 531,570;this balance represented salaries and wages earned by Cheesecake Factory employees in 2015 that were then paid in January 2016. When Cheesecake Factory paid the 31.570 in January 2016, it reduced (debited) Salaries and Wages Payable and reduced credited) Cash. As of January 3, 2017. Cheesecake Factory employees had earned salaries and wages of $39.401 that would be paid in early January 2017 Requirements 1. Create the adjusting journal entry necessary at January 3, 2017. for: a. Prepaid Expenses h. Prepaid Rent c. Gift Cards d. Salaries and Wages Payable 2. If the adjusting journal entries had not been made for 2016, what would have been the impact on Cheesecake Factory's operating income?

Answer 1

1- Journal Entries
date	explanation	Debit	credit
1-	supplies expense	64298
	prepaid expense		64298
2-	rent expense	36864
	prepaid rent		36864
3-	gift card	409010
	revenue from sales of gift card		409010
4-	salaries and wages expense	39401
	salaries and wages payable		39401
2-	Impact on operating income
Transaction 1	increase the operating profit by 64298
Transaction 2	increase the operating profit by 36864
Transaction 3	decrease the operating profit by 409010
Transaction 4	increase the operating profit by 39401