The Pizza and Coffee Company is owned and operated by Patty Patterson who commenced the business eight years ago. The company is now faced with financial challenges and is therefore in need of financial assistance from Ready Cash a local bank. You and your group members are the accounting associates supporting the credit request to Ready Cash and they are requesting a full set of financial statements to ensure that granting the loan would be financially feasible. Your head of finance has furnished you with the latest trial balance for The Pizza and Coffee Company, along with other information relevant to the year under review and you are tasked to prepare the documents requested by Ready Cash. Below is the trial balance which was extracted from the books of the business on December 31, 2020, the end of the company’s financial year. As a group, you are required to collaborate and analyse the problem at hand then apply the accrual basis of accounting in the preparation of the company’s financial statements The Pizza and Coffee Company Trial Balance as of December 31, 2020 A/C Name DR CR Cash 560,000 Accounts receivable 3,710,000 Allowance for bad debt 290,000 Merchandise Inventory 2,580,000 Store Supplies 1,300,000 Prepaid Insurance 2,775,000 Prepaid rent 1,000,000 Furniture 2,650,000 Accumulated deprecation-Furniture 2,080,000 Machinery 1,800,000 Accumulated depreciation- Machinery 1,328,141 Accounts payable 630,000 Salary payable Interest payable Unearned Sales revenue 800,000 Note Payable, long term 2,500,000 Patty Patterson, Capital 5,200,000 Patty Patterson, Withdrawals 280,000 Sales revenue 22,726,859 Sales discount 1,200,000 Sales returns and allowances 800,000 Cost of goods sold 8,100,000 Salaries expense 7,270,000 Insurance Expense Utilities Expense 580,000 Rent Expense 950,000 Depreciation Expense – Furniture Depreciation Expense – Machinery Store Supplies Expense Gain on Disposal of Machinery Bad-Debt Expense Interest Expense 35,555,000 35,555,000 Store Supplies on hand on December 31, 2020, amounted to $255,500. (ii) Insurance of $2,775,000 was paid on January 1, 2020, for the 15-months to March 31, 2021 (iii) Prepaid rent expired December 31, 2020, amounts to $850,000 (iv) The furniture and fixtures have an estimated useful life of 10 years and is being depreciated on the straight-line method down to a residual value of $50,000. (v) The machinery cost includes two coffee drink machines purchased for $900,000 each by the company on January 1, 2014. The double-declining balance method of depreciation is used to compute the machinery’s depreciation charges and their expected useful life is 10 years or 100,000 drinks. In 2014, 5,000 drinks were sold, 6,500 in 2015, 7,800 in 2016, 9,000 in 2017, 11,500 in 2018, 12,800 in 2019 and 15,900 sold in 2020. The residual value on both machines is $96,637 each. On September 1, 2020, the company sold one of the coffee drinks machines for $480,000 cash. (vi) Salaries earned by employees and not yet paid amounted to $180,000 on Dec 31, 2020. (vii) Accrued interest expense as of December 31, 2020, $98,000. (viii) On Dec 31, 2020, $695,000 of the previously unearned sales reven The aging of the Accounts Receivable schedule on Dec 31, 2020, indicated that the Allowance for Bad Debts should be $371,000 (x) A physical count of inventory was done on December 31, 2020, after making all the other adjustments and this revealed that there was $2,400,000 worth of inventory on hand at this point. Other data: (xi) The business is expected to make principal payments totalling $400,000 towards the loan during the fiscal year to December 31,2021 Prepare the necessary adjusting journal entries on Dec 31, 2020. [Narrations are not required] b) Prepare the Adjusted Trial balance for the period ending December 31, 2020. c) Using the Adjusted trial balance, generate the statements requested by Ready Cash, i.e. ▪ A Multiple-step income statement & a Statement of owner’s equity for the year ended December 31, 2020 ▪ A Classified balance sheet, in report format, at December 31, 2020.
The Pizza and Coffee Company is owned and operated by Patty Patterson who commenced the business eight years ago. The company is now faced with financial challenges and is therefore in need of financial assistance from Ready Cash a local bank. You and your group members are the accounting associates supporting the credit request to Ready Cash and they are requesting a full set of financial statements to ensure that granting the loan would be financially feasible. Your head of finance has furnished you with the latest
The Pizza and Coffee Company
Trial Balance as of December 31, 2020
A/C Name
DR CR
Cash 560,000
Accounts receivable 3,710,000
Allowance for bad debt 290,000
Merchandise Inventory 2,580,000
Store Supplies 1,300,000
Prepaid Insurance 2,775,000
Prepaid rent 1,000,000
Furniture 2,650,000
Accumulated deprecation-Furniture 2,080,000
Machinery 1,800,000
Accounts payable 630,000
Salary payable
Interest payable
Unearned Sales revenue 800,000
Note Payable, long term 2,500,000
Patty Patterson, Capital 5,200,000
Patty Patterson, Withdrawals 280,000
Sales revenue 22,726,859
Sales discount 1,200,000
Sales returns and allowances 800,000
Cost of goods sold 8,100,000
Salaries expense 7,270,000
Insurance Expense
Utilities Expense 580,000
Rent Expense 950,000
Depreciation Expense – Furniture
Depreciation Expense – Machinery
Store Supplies Expense
Gain on Disposal of Machinery
Bad-Debt Expense
Interest Expense
35,555,000 35,555,000
Store Supplies on hand on December 31, 2020, amounted to $255,500.
(ii) Insurance of $2,775,000 was paid on January 1, 2020, for the 15-months to March 31,
2021
(iii) Prepaid rent expired December 31, 2020, amounts to $850,000
(iv) The furniture and fixtures have an estimated useful life of 10 years and is being
(v) The machinery cost includes two coffee drink machines purchased for $900,000 each by
the company on January 1, 2014. The double-declining balance method of depreciation is
used to compute the machinery’s depreciation charges and their expected useful life is
10 years or 100,000 drinks. In 2014, 5,000 drinks were sold, 6,500 in 2015, 7,800
in 2016, 9,000 in 2017, 11,500 in 2018, 12,800 in 2019 and 15,900 sold in 2020. The
residual value on both machines is $96,637 each. On September 1, 2020, the company
sold one of the coffee drinks machines for $480,000 cash.
(vi) Salaries earned by employees and not yet paid amounted to $180,000 on Dec 31, 2020.
(vii) Accrued interest expense as of December 31, 2020, $98,000.
(viii) On Dec 31, 2020, $695,000 of the previously unearned sales reven
The aging of the Accounts Receivable schedule on Dec 31, 2020, indicated that the
Allowance for
(x) A physical count of inventory was done on December 31, 2020, after making all
the other adjustments and this revealed that there was $2,400,000 worth of inventory
on hand at this point.
Other data:
(xi) The business is expected to make principal payments totalling $400,000 towards the
loan during the fiscal year to December 31,2021
Prepare the necessary
[Narrations are not required]
b) Prepare the Adjusted Trial balance for the period ending December 31, 2020.
c) Using the Adjusted trial balance, generate the statements requested by Ready Cash, i.e.
▪ A Multiple-step income statement & a Statement of owner’s equity for the year ended December 31, 2020
▪ A Classified balance sheet, in report format, at December 31, 2020.
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