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Henrietta’s was established in 1963 when it first opened its doors in Dwight, Muskoka on highway...

Question:

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


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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