a) 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
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 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
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
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]
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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