Accounting Cycle

The Swatch Group Limited (Swatch) is a publicly listed organization based in Switzerland. Swatch manufacturers and sells high quality watches. Swatch`s fiscal year end is December 31.

You have been hired by the Corporate Controller to provide assistance in accurately identifying and posting the adjusting entries necessary to ensure reliable financial statements are prepared for year end. You have also been asked to provide draft financial statements (see details noted below in the Required section).

Swatchs account balances as of December 31, 2020 before adjusting entries are in Canadian dollars:

Accounts payable		235,000
Accounts Receivable	1,450,000
Accrued liabilities		389,000
Accumulated depreciation-plant and equipment		30,000
Advertising expense	410,000
Allowance for doubtful accounts		32,000
Bad debt expense	20,000
Bonds payable		1,300,000
Cash	3,400,000
Common shares, 12,500 no-par shares issued		3,500,000
Cost of goods sold	770,000
Goodwill	2,900,000
Intangible assets	780,000
Interest expense	270,000
Inventory	470,000
Land	3,340,000
Office expense	620,000
Office Supplies	7,000
Plant and equipment	257,000
Prepaid insurance	120,000
Retained earnings		6,828,000
Salaries and wages expense	1,700,000
Sales		4,200,000

The Controller has provided the following information for year-end:

1. Swatch uses the percentage-of-receivables method to calculate the bad debt provision each year. Swatch has estimated this allowance should be $40,000 at the end of the year. HINT: An allowance for doubtful accounts is a contra asset account on the balance sheet representing managements estimates of uncollectible accounts. An adjustment to the allowance account on the balance sheet requires an offsetting adjustment to the bad debt expense account on the income statement.

2. During the last quarter of 2020, an additional 500 shares were issued for cash at $400 per share. The accounting for this entry was missed and Swatch has not recorded the transaction.

3. The prepaid insurance account relates to an amount paid for a 12-month fire insurance policy. The policy was paid on August 1, 2020.

4. A year end count of office supplies was completed. Office supplies on hand are $5,600.

5. A dividend of $1.00 per share was declared and not yet recorded on December 15. Payment is anticipated 60 days following declaration of the dividends.

6. The building and equipment were acquired on January 1, 2017 and were being amortized on a straight-line basis over 20 years. As of January 1, 2020, Swatch revised the estimated residual value of the building to $70,000 and the remaining useful life to 10 years (total useful life of 13 years, with 3 years already depreciated). Depreciation has not yet been recorded for 2020.

7. The Occupy your wrist! Campaign was launched during the year. Swatch paid $348,000 for advertising in magazines for the period March 1, 2020 to March 1, 2021. The full amount was recorded as advertising expense.

8. Employees earned $22,000 during December have not been paid, are expected to be paid January 5, 2021.

9. Swatch`s plan for expansion to increase the number of boutiques in the year by 200 stores, was financed by issuance of 11% par value bonds in the amount of $600,000, maturing on July 31, 2022. Interest was paid on April 1 and October 1. The original amount financed has been correctly recorded.

10. Swatch received $100,000 from a customer midway through the 2020 year and is required to deliver goods to the customer by or on March 31, 2021. The entry for the deposit was recorded as Sales.

11. Swatch plans to produce a film called Planet Ocean, aimed at raising awareness of oceanic health. On April 1, 2020, Swatch paid an amount of $50,000 to photographer Yann Bertand for his services to be provided in 2021. . The transactional entry was recorded as a debit to Land.

Required:

1. Prepare the following statements in proper format:

• Statement of Comprehensive Income (Multi-step Income Statement)
• Statement of Financial Position (Classified Balance Sheet)
• Statement of Retained Earnings

2. Prepare the closing journal entry(ies).

SHOW CALCULATIONS WHERE IT IS REQUIRED!