Henrietta’s was established in 1963 when it first opened its doors in Dwight, Muskoka on highway...
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 rent 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, FINACC 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:
o Computer: 5 years
o Bakery equipment: 10 years
o 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 |
Based on the information you have prepare the adjusting journal entries, an adjusting trial balance, the statement of earnings (income statement), statement of financial position (balance sheet), and statement of retained earnings. After you have completed the statements, prepare the closing journal entries and the posting closing trial balance. Ensure you show all of your work, and prepare proper journal entries and properly formatted financial statements.
Note to students: Issues are hidden within the case. It is your responsibility to read the case facts and identify the critical issues required for discussion and analysis.
Evaluation
Case Analysis 2 will be marked in its entirety out of 100. The following rubric indicates the criteria students are to adhere to, and their relative weights to the assignment overall. The instructor may also generate a class case discussion, upon which a grade scaling might be deemed appropriate.
|
Activity/Competencies Demonstrated |
% of Final Grade |
|
|
1. |
Identification and Analysis of Issues (100%) |
|
|
a. Adjusting Entries |
/17 |
|
|
b. Adjusting Trial Balance |
/10 |
|
|
c. Balance Sheet |
/28 |
|
|
d. Statement of Operations |
/13 |
|
|
e. Statement of Retained Earnings |
/6 |
|
|
f. Closing Entries |
/16 |
|
|
g. Post-Closing Trial Balance |
/10 |
|
|
Total |
||
Homework Answers
| Henrietta's | |||
| Dwight, Muskoka on highway 60. | |||
| Adjusting Entries | |||
| Sr. NO. | Particulars | Debit | Credit |
| 1 | Insurance Expense A/c Dr | 3400 | |
| To Prepaid Account | 3400 | ||
| (Being Last year insurance bal adjusted) | |||
| 2 | Prepaids Account Dr | 7500 | |
| To Insurance Expense Account | 7500 | ||
| (Being This Year Prepaid insurance seperated) | |||
| 3 | Depreciation A/c Dr | 22500 | |
| To Accumulated Amortization – Computers | 6000 | ||
| To Accumulated Amortization – Bakery Equipment | 9000 | ||
| To Accumulated Amortization – Furniture and Fixtures | 7500 | ||
| (Being Depreciation charged) | |||
| 4 | Account Receivable A/c Dr | 1089 | |
| To Event Revenue Account | 1089 | ||
| (Being Event Revenue Recorded) | |||
| 5 | Salary Account Dr | 900 | |
| Telephone Expense Account Dr | 400 | ||
| Electricity Expenses Account Dr. | 400 | ||
| To Accrued Liabilities | 1700 | ||
| (Being Accrued Liab Not recorded earlier now recorded) | |||
| 6 | Interest Expense A/c Dr | 17600 | |
| To Interest Payable | 17600 | ||
| (Being Interest Expense omitted being recorded) | |||
| 7 | Retained Earning A/c Dr | 5000 | |
| To Dividend Payable Account | 5000 | ||
| (Being Dividend Declared not recorded ) |
| Henrietta's | ||
| Dwight, Muskoka on highway 60. | ||
| Adjusted Trial Balance | ||
| Particulars | Debit | Credit |
| Cash | 35000 | |
| Account Receivable | 5600 | |
| Food Inventory | 21000 | |
| Merchandise Inventory | 62500 | |
| Prepaids | 7500 | |
| Computers | 30000 | |
| Accumulated Amortization – Computers | 18000 | |
| Bakery Equipment | 90000 | |
| Accumulated Amortization – Bakery Equipment | 27000 | |
| Furniture and Fixtures | 150000 | |
| Accumulated Amortization – Furniture and Fixtures | 22500 | |
| Account Receivable | 1089 | |
| Accounts Payable | 18000 | |
| Accrued Liabilities | 1700 | |
| Interest Payable | 17600 | |
| Dividend Payable | 5000 | |
| Long-term Loan | 220000 | |
| Common Shares | 50000 | |
| Retained Earnings | 17000 | |
| Food Revenue | 468500 | |
| Internet Revenue | 127000 | |
| Merchandise Revenue | 103000 | |
| Event Revenue | 1089 | |
| Food Expense | 240000 | |
| Internet Expense | 54000 | |
| Electricity Expense | 65400 | |
| Telephone Expense | 20400 | |
| Interest Expense | 17600 | |
| Salary Expense | 200900 | |
| Insurance Expense | 4900 | |
| Supplies Expense | 8000 | |
| Depreciation Expense | 22500 | |
| Rent Expense | 60000 | |
| 1096389 | 1096389 |
| Henrietta's | |||||
| Dwight, Muskoka on highway 60. | |||||
| Balance Sheet | |||||
| Liability | Amount | Assets | Amount | ||
| Equity | Fixed Assets | ||||
| Common Shares | 50000 | Computers | 30000 | ||
| Retained Earnings | 22889 | 72889 | Accumulated Amortization – Computers | 18000 | 12000 |
| Bakery Equipment | 90000 | ||||
| Non Current Liability | Accumulated Amortization – Bakery Equipment | 27000 | 63000 | ||
| Long-term Loan | 220000 | Furniture and Fixtures | 150000 | ||
| Accumulated Amortization – Furniture and Fixtures | 22500 | 127500 | |||
| Current Liability | |||||
| Accounts Payable | 18000 | Current Assets | |||
| Accrued Liabilities | 1700 | Cash | 35000 | ||
| Interest Payable | 17600 | Account Receivable | 5600 | ||
| Dividend Payable | 5000 | 42300 | Food Inventory | 21000 | |
| Merchandise Inventory | 62500 | ||||
| Prepaid | 7500 | ||||
| Account Receivable | 1089 | 132689 | |||
| 335189 | 335189 |
| Henrietta's | |||
| Dwight, Muskoka on highway 60. | |||
| Statement of Operations | |||
| Debit | Amount | Credit | Amount |
| Food Expense | 240000 | Event Revenue | 1089 |
| Internet Expense | 54000 | Internet Revenue | 127000 |
| Electricity Expense | 65400 | Merchandise Revenue | 103000 |
| Telephone Expense | 20400 | Food Revenue | 468500 |
| Interest Expense | 17600 | ||
| Salary Expense | 200900 | ||
| Insurance Expense | 4900 | ||
| Supplies Expense | 8000 | ||
| Rent Expense | 60000 | ||
| Depreciation | 22500 | ||
| Net Profit | 5889 | ||
| 699589 | 699589 |
| Henrietta's | |||
| Dwight, Muskoka on highway 60. | |||
| Statement of Retained Earning | |||
| Common Share | Retained Earning | Total | |
| Opening Balance | 50000 | 22000 | 72000 |
| Add: Profit During the Year | - | 5889 | 5889 |
| Less: Dividend Declared | -5000 | -5000 | |
| Closing Balance | 50000 | 22889 | 72889 |
| Henrietta's | |||
| Dwight, Muskoka on highway 60. | |||
| Closing Entries | |||
| Sr. NO. | Particulars | Debit | Credit |
| 1 | Food Revenue | 468500 | |
| Internet Revenue | 127000 | ||
| Merchandise Revenue | 103000 | ||
| Event Revenue | 1089 | ||
| To Food Expense | 240000 | ||
| To Internet Expense | 54000 | ||
| To Electricity Expense | 65400 | ||
| To Telephone Expense | 20400 | ||
| To Interest Expense | 17600 | ||
| To Salary Expense | 200900 | ||
| To Insurance Expense | 4900 | ||
| To Supplies Expense | 8000 | ||
| To Depreciation Expense | 22500 | ||
| To Rent Expense | 60000 | ||
| To Retained Earnings | 5889 | ||
| (Being Closing Entry Passed) |
| Henrietta's | |
| Dwight, Muskoka on highway 60. | |
| Post Closing Trial Balance | |
| Particulars |
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Account Name Debit Credit Cash $35,000 Accounts Receivable 5,600 Food Inventory 21,000 62,500 Merchandise Inventory Prepaids 3,400 Computers 30,000 12.000 Accumulated Amortization - Computers Bakery Equipment 90,000 18,000 Accumulated Amortization - Bakery Equipment Furniture and Fixtures 150,000 15,000 Accumulated Amortization - Furniture and Fixtures Accounts Payable Accrued Liabilities Interest Payable Dividend Payable Long-term Loan 220,000 Common Shares Retained Earnings 50,000 22,000 468,500 Food Revenue Internet Revenue 127,000 Merchandise Revenue 103,000 Food Expense 2 40,000 Internet Expense 54,000 Electricity Expense 65,000...
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....
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