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 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:
Computer: 5 years
Bakery equipment: 10 years
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 prepared 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.
