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. A/C DR CR Cash 560,000 Accounts Receivbales 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 Accu Depc'n Furniture 2,080,000 Machinery 1,800,000 Accu Depc'n 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 Person Withdrawals 280,000 Sales Revenue 22,726,859 Sales Count 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 Depc'n Expense - Furniture Depc'n Expense Machinery Store Supplies Expense Gain on Disposal Machinery Bad-Dept Expense Interest Expense 35.555,000 35,555,000 The following additional information is available December 31, 2020: (i) 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 revenue had been earned (ix) 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. Required: a) Prepare the necessary adjusting journal entries on Dec 31, 2020. [Narrations are not required]
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
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.
| A/C | DR | CR |
| Cash | 560,000 | |
| Accounts Receivbales | 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 | |
| Accu Depc'n Furniture | 2,080,000 | |
| Machinery | 1,800,000 | |
| Accu Depc'n 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 Person Withdrawals | 280,000 | |
| Sales Revenue | 22,726,859 | |
| Sales Count | 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 | |
| Depc'n Expense - Furniture | ||
| Depc'n Expense Machinery | ||
| Store Supplies Expense | ||
| Gain on Disposal Machinery | ||
| Bad-Dept Expense | ||
| Interest Expense | ||
| 35.555,000 | 35,555,000 | |
The following additional information is available December 31, 2020:
(i) 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 revenue had been earned
(ix) 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.
Required:
a) Prepare the necessary
[Narrations are not required]
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