Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

3. Overall, how would you characterize High Street Cafe's performance in 2022? Should Jim and Michelle be pleased? Uncle Don? Jim and Michelle's parents? What

image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed

3. Overall, how would you characterize High Street Cafe's performance in 2022? Should Jim and Michelle be pleased? Uncle Don? Jim and Michelle's parents? What criteria did you use to gauge HSC's performance? Briefly explain your answer.

4. From a cash flow, cash balance and cash needs standpoint, how has High Street performed in 2022? What cash criteria did you use to gauge HSC's cash performance? Briefly explain your

answer.

Hiph strest Cate the Oisons sere happy to learn that HSC lad a $25 thousand tax refund coming to it, thes were somewhat astonished to learn from Mary that the Company had exuctly broken even for tax purposes for the 12 monds period ended December 31,2022 - I thouglat we had done better thun that," eommented Jim Olson to Mary Carison atter she went theough the Gx return wits thith. "Well, you have to remember lim, that for tax parposes you have elected to file the High Street? Mary contimsed, "In addition, for tax purposes, recent fax lanw' has made it possible for IHSC: (1) to expense the equipment and furtishings. HSC parchased on Desember 31, 20121 and on December 31,2022 , (2) so expense the build-out of the additiosal restroom on December 31, 2022 : and, (3) to take aceeleratcd depreciation on the bulding. There are also some other adjustricats that beed to be made to transforg HSC: tax return into a set of fitancial statements that are bascd on the ascrual accounting method. Flif record the tramsactions, mako the adjustments, pre: pare the acervial besed statements and get back to you on Jathary 2. Tax Return for the Twelve Montas from January 1, 2022 through December 31, 2022 (prepared on a nodified cash basis) Revenues: Cach Collected os Salos Casb fran Advances fron Customery Pocetrad 12/31/2021 (doductible 2022) Cash Irom Advances from Cuskoonez: fotal Taxable Nevesues gopenses; Payment of Accotints rayable fox Food f. Supplies. Patuhased in 2021 if 50 c. PaypentofAcoountabayableforPoct6supitesPaymentofRocoubtsPayabioLorPoonBalariesof.Jim6XichelleolmonWrite-orfofhocountRecelvable InsurancePaymenton12/31/2022InteecestPaymontonMoztgageMecelezatedDepreciationforButldingkquipent6FuralshingsPutchsteon22/31/2021(deductiblein2022)gquiponet4rurnishingsDirchaseon12/32/2022(dedactiblein2022)pulidoutofMdditionalPostroceon12/31/2022.(dedaetibie2022)TotalTaxDedactibleExpenses Pretax Faxahle Incoete for Tak purposes Faxes payoble to the IRs (astune a 204 tax raze) Tax wet Incoale Entimated zax Payment to the the on Dacetber 15, 2022 Tns pefucd Receivable Card, Mary used the balance sthet as of Decermber 31, 2021 (see page 3 of the ease) as High Strects bepining balance sheet on January 1,2022 . Next, Mary recorded the transactions that High Street Cafe bad enterod into since it opened for business on January 1,2022. Shc began recording HSC's transuctions frum the eash deposits and wishdrawals reeond (see page 3 ) for the Cafe from Jamuiry 1,2022 through December 31 . 2022. Mary went through each of the following tramsactions, naking acertal accounting adjustments that she deemed necessiry aloag the way. Transactions: a. On fanuary 1, 2022, the High Stroet Cafo receiwed a loun from A iax National Bank for $150 thousand. The \$150 thousand priecipal and \$9 thousand annual interest at 6% on the Joan was due on Jasuary 1,2023. b. At the end of January, 2022, the $0 thousind accouns pryable for the initial food and supplies invensory received on December 31.2021 was paid. c. Throaghout 2022, the Compary purchased a total or $1,400 thousand for food and supplies soods from suppliers an account. On Decernber 31, 2022, HSC still owed suppliens $200 thousand for food and supplies. The Company did noc owesuppliers for any otber items on December 31, 2022. d. Acconding 40 HSC's reconds, on Decemiber 31, 2022, is still had food and supplies inventony of $150 thousand. e. In January 2022, HSC sent the \$25 thousand of food and supplies from the advance pary: ment to the hotel for the botel's aprc-rki parties (see transiction 7 on page 2). f. fa-store sales of High Sireet Cale's products were for cash or eredit cants. Ilsc recerved $2,400 tbousand in cash for sales made to customers during 2022 who paid in cash or with a credit card 1. Credit card and comancreial crodit customers still bured High Sireet Cafe S80 thousand on Desember 31, 2022 for cafe purchases from HSC during 2022 h. Also, the cafeliad quiekly developed a catering relationship with a trumber of businesses paymeats for eafe goods that will bo providod to customers in Jaenary and Fobruary 2023. i. HSC paid $591 thousand for the ches of wages, utilities and advertising during 2022 . As of December 31,2022 , all wages, utifities and advertising costs for 2022 had been paid. j. For 2022, the Olsons cach camed $175 thousud in salary, for a totat of $350 thousand. by working falt time at the Company. However, in onder to conserve HSC 8 eant outflow, the Olsons had decided to posi-pone recetving half of the salaries they eamed in 2022 . As a resilt, they esch received half of thicir salunes in eash frotn the Company in 2022 , for a total payment of $175 thousand, ind were still oped the other half of theis sularies for a k. On December 15, 2022, HSC made an estimbled income tux payment of \$25 thousand for the 12 month period ended on Dexember 31, 2022. ion streescafe 1. On December 31, 2022, HSC pait Ajax National Bank $15 thousand in interest and 59 thousand of principal on the Company's motpage payable. m. On Desember 3h, 2022, HSC paid $126 thousund for insurance coverage (premiums had increased slightly) for the next 12 menths ending Decenber 31, 2023. The $120 thousand for insurance coverage paid on December 31, 2021 for the 12 mopths ending. Decembet 31, 2022 (sec item c. on page 2) haid been "used up". B. On Decenber 31, 2022, HSC paid S100 thousand for additional eguipment and furnishings which were deliverod and instilied on December 31,2022 . The new equipenent has a usefut life of 10 years once is begins being used on Jamuary 1,2023. For tax purposes, it is included as a deftuctios in the 2022 tax retum Mary prepared (see page 4) 0. On December 31,2022, for financtal reporting purposes, Mary determivod that the tangible assets parcbased on December 31, 2021: (1) the equipment and farrishinge Lavo a useful life of 10 years; and, (2) the butding las a tseful life of 20 years. Sho used straight line deprociation to depreciate the tangible assets parchased on Docember 31, 2021. p. On Decerther 31.2022, Jim told Mary a customer sill owed HSC $10 thoukatid tinchuded in the 580 theusand still owed by credit eusomers) for cafe goods sapplied at the beginnimg of November 2022. The custatner suid he wis experiencing cash flow probiems which be "loped" would improve hy March 2023 when he "tsoped" he would pay the 510 thousand. Mary thought that thete was a slim chance of collecting the S10 thousand. 9. On December 31, 2022, mother onc of HSC's customers that owed $5 thoustind (included in the $50 thousand still owed by eredit cutsomers) has liquidated in December, 2022 . The liquidating trustec informed HSC that it woald not receive iny of the $5 thossand As a result, Mary determined that there was no chance of collecting the $ s thousand. 1. On Decenter 31,2022 , Jim and Michelle's parents purchased from Uncle Don all of Uncle Don's 20% ownership of HSC"s common stock for $112 thesated. 5. On December 31, 2022, is order to provide HSC a "cash eushion" for the upcoming year, firm and Michelle's parents agreed to wait obo more year before recelving the $100 thousand principal and the 510 thossand interest that HSC owed them on their loan. 1. On Docember 31, 2022, HSC paid $25 thousand for the truild out of an additional reatroom in the rentaumt. A of December 31,2022, nene of the cost of the restroom has been uscd ap and it is expected to last as long as the remaining thefut life of tho bailding 4. On December 31, 2022, HSC owed Ajax. National Bank the $150 thousind principal and 59 thossand interest on the bunk loan it roceived on Jamuary 1, 2022 (see transactien B. on poge 5). HSC paid both the principal and inserest on January 1, 2023 Once she bad completed bookkecping all of these transactiom, Mary began to piece wogether the information she needed to preqare an income statetrient for the 12 months ended Deceriber 31,2022 , a balance sheet as Deegenber 31,2022 , as well as cash flow tatencents (using both the direct and indirect formats) for the twelve monht endad December 31,2022. to) served on fresh bakod brosi., While the dimner mera was not extensive, the clief the Olsons Michelle's vision for the cafe had been motivated by their trips to Coentincatal Eutope wherd they bad seen and enjoyed the delicacies of many "old sty ie" eafes. The Olsons patremot the amblance and dcor of their cafte to be similiar to their European conmterparts. HIGH STREET CAF Statement of Financial Position (Balance Sheet) as of December 31.2021 Throughout 2022, the Olwons worked full-time operating HSC. On Dexember 31, 2042, we Olsons were anxious to file HSC's calendar 2022 tax return as 300 a as possible. The Otsons felt that. HSC might be entitled to a refund and they wated to obtain it without delay. They prot the Company's records together and met with theff friend Wary Curtson, a tocal acooumant. The only reoords that the Olsons kept for HSC were achecklook re fister (see below) which included derecords that the Oxplanations of all checks drewn, af file of all invoioss receivect, and a list of sales madio on account. Mary Carkion took the records to her office to preqpare HSC"s tax tetum. uments for their new besibess venture, the High Street Cafe ("IISC" of the "Company"), is As. Also on Decenber 31, 2021, HSC 4. Paid a local insarance cotrpany $120 thousand for 12 mowhs of fie and casualty insorasce for the Company through Desember 31,2022 . The nest insarance premium poymest and other fermichings: invertory which was delivered to HisC on Deceinber 34, 2021. 7. Feceived is $25 thonsand abyanco payment from an Aspen lwod for food to be delivered to the hed for opres-skipartics at the thot in mid-Jamany 2022 The balance shect on the next paye shows the results of HSC s ransietions as of December 1 The balance sibet on the next pay chows the resuls of Hses nassing of the caff 3

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Benfords Law

Authors: Mark J. Nigrini

1st Edition

1118152859, 9781118152850

More Books

Students also viewed these Accounting questions

Question

2. Should a disciplinary system be established at Carter Cleaning?

Answered: 1 week ago

Question

1. What would you do if you were Jennifer, and why?

Answered: 1 week ago

Question

1. Explain what is meant by ethical behavior.

Answered: 1 week ago