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Objectives

  • Develop an ability to identify and assume an assigned

role.

  • Identify and rank the importance of explicit issues.
  • Illustrate the importance of hidden (undirected) issues that arise from a detailed analysis.
  • Identify accounting issues (GAAP/IFRS compliance issues), assess their implications, generate alternatives, and provide recommendations within the bounds of GAAP/IFRS to meet the client's needs.
  • Examine how accounting standards impact financial measures (ratios, covenants, etc.).
  • coherent report and integrated analysis that meets specific user needs.
  • Instructions


    • identifying the role you are playing,
    • assessing the financial reporting landscape considering the user needs, constraints, and business environment,
    • identifying the issues,
    • analyzing the issues (qualitatively and quantitatively), and
    • providing a recommendation for each issue identified in the case.

    An average grade will come from you answering all questions with basic coverage and accuracy, showing all your work. Additional points come from including greater detail, astute and informed commentary where appropriate, and connections to readings and other content.

    Respond in a single Word doc (or comparable text editor).

    Henrietta's Pine Bakery

    Background

    You are an Analyst for the professional service firm, BUSI 1043 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 rend 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, BUSI 1043 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:
    • 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 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.

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