Question

Henrietta’s Pine Bakery Background You are an Analyst for the professional service firm, FINACC 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 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 /100

Answer 1

Debit Credit 220 221 222 223 224 225 Date Account Title & Explanation 2015 31-Dec Insurance expense (3400 +9000*2/12) Prepaid insurance (To record expired insurance) 4,900 4,900 226 900 31-Dec Salary Expense Accrued Liabilities ((To record accrued wages) 900 17,600 31-Dec Interest Expense (220000*8%) Interest Payable (To record accrued interest expense) 17,600 227 228 229 230 231 232 233 234 235 236 237 238 239 240 1,089 31-Dec Accounts Receivable Food Revenue (TO record revenue earned but not yet billed) 1,089 5,000 31-Dec Retained Earnings Dividend Payable (TO record declaration of Dividend) 5,000

22,500 31-Dec Depreciation expense Accumulated Amortization - Computer Accumulated Amortization - Bakery Equipment Accumulated Amortization - Furniture and Fixtures (To record depreciation expense) 6,000 9,000 7,500 242 243 244 245 246 247 248 249 250 251 252 400 400 31-Dec Telephone expense Electricity Expense Accrued Liabilities (TO record accrued liabilities) 800

Credit Henrietta's Pine Bakery Adjusted Trial Balance 31st Dec. 2015 Debit 35,000 6,689 21,000 62,500 7,500 30,000 18,000 2531 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 90,000 27,000 Account Title Cash Accounts Receivable Food Inventory Merchandise Inventory Prepaids Computers Accumulated Amortization - Computers Bakery Equipment Accumulated Amortization - Bakery Equipment Furniture and Fixtures Accumulated Amortization - Furniture and Fixtures Accounts Payable Accrued Liabilities Interest Payable Dividend Payable Long-term Loan Common Shares Retained Earnings Food Revenue 150,000 22,500 18,000 1,700 17,600 5,000 220,000 50,000 17,000 468.500

127,000 104,089 276 277 278 279 280 281 282 283 284 285 286 287 288 289 Internet Revenue Merchandise Revenue Food Expense Internet Expense Electricity Expense Telephone Expense Interest Expense Salary Expense Insurance Expense Supplies Expense Depreciation Expense Rent Expense Total 240,000 54,000 65,400 20,400 17,600 200,900 4,900 8,000 22,500 60,000 1,096,389 1,096,389

Henrietta's Pine Bakery Income Statement 31st Dec.2015 468,500 127,000 104,089 699,589 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 Food Revenue Internet Revenue Merchandise Revenue Total Revenues Expenses Food Expense Internet Expense Electricity Expense Telephone Expense Interest Expense Salary Expense Insurance Expense Supplies Expense Depreciation Expense Rent Expense Total Expenses Net Income 240,000 54,000 65,400 20,400 17,600 200,900 4,900 8,000 22,500 60,000 693,700 5,889 309

311 312 Henrietta's Pine Bakery Statement of Retained Earnings 31st Dec.2015 313 314 22,000 315 Beginning Balance of Retained Earnings Add Net Income Less Dividend Ending Balance of Retained Earnings 5,889 (5,000) 316 889 317 22,889 318 319 320 Henrietta's Pine Bakery Balance Sheet 31st Dec.2015 321 32: (Ctrl) 323 324 325 A ts Cash Accounts Receivable Food Inventory Merchandise Inventory Prepaids Total Current Assets Property,Plant & Equipment Computers Accumulated Amortization - Computers 35,000 6,689 21,000 62,500 7,500 326 327 328 132,689 329 330 331 30,000 (18,000)

90,000 (27,000) 150,000 (22,500) 202,500 335,189 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 Bakery Equipment Accumulated Amortization - Bakery Equipment Furniture and Fixtures Accumulated Amortization - Furniture and Fixtures Total Assets Liabilities Accounts Payable Accrued Liabilities Interest Payable Dividend Payable Total Current Liabilities Long-term Loan Total Liabilities Shareholder's Equity Common Shares Retained Earnings Total Liabilities & Shareholder's Equity 18,000 1,700 17,600 5,000 42,300 220,000 262,300 50,000 22,889 72,889 335,189

Closing Entries Debit Credit 350 351 352 353 354 355 356 Date Account Title & Explanation 31-Dec Food Revenue Internet Revenue Merchandise Revenue Income Summary (To record closing of Revenues) 468,500 127,000 104,089 699,589 357 693,700 358 359 360 361 362 363 364 365 366 367 368 369 370 31-Dec Income Summary Food Expense Internet Expense Electricity Expense Telephone Expense Interest Expense Salary Expense Insurance Expense Supplies Expense Depreciation Expense Rent Expense (To record closing of expenses) 240,000 54,000 65,400 20,400 17,600 200,900 4,900 8,000 22,500 60,000

5,889 31-Dec Income Summary Retained Earnings (To record transfer of Income) 5,889 372 373 374 375 376 377 378 379 5,000 31-Dec Retained Earnings Dividends (To record closing of Dividends) 5,000

Credit Henrietta's Pine Bakery Post Closing Trial Balance 42,369 Debit 35,000 6,689 21,000 62,500 7,500 30,000 18,000 380 381 382 383 384 385 386 387 388 389 390 391 392 393 394 395 396 397 398 399 400 401 402 90,000 27,000 Account Title Cash Accounts Receivable Food Inventory Merchandise Inventory Prepaids Computers Accumulated Amortization - Computers Bakery Equipment Accumulated Amortization - Bakery Equipment Furniture and Fixtures Accumulated Amortization - Furniture and Fixtures Accounts Payable Accrued Liabilities Interest Payable Dividend Payable Long-term Loan Common Shares Retained Earnings Total 150,000 22,500 18,000 1,700 17,600 5,000 220,000 50,000 22,889 402.689 402.689