Background:

• You recently accepted the controller position for Java the Hut, a regional coffee chain.
• The owner informs you that a complete financial statement package will be required as part of a new bank loan compliance requirements ("covenants").
• Prior to your arrival, the company had one accountant and relied heavily on the auditors in the preparation of financial statements. With the new controller position, the expectation is that you will assume the preparation of financial statements.
• On your first day of work on April 1, 2018, the Java the Hut accountant informs you that there were a number of transactions in the first quarter of 2018 that she was unsure of the appropriate accounting.Consequently, she recorded the cash activity in the Other Assets - Holding account as a temporary holding account. The good news is that the Java the Hut accountant maintained excellent details of the various transactions and has a series of supporting schedules for you.
• The project reflects a "real-life" challenge in that you are responsible for accounting issues months following the actual transaction. In this case, an acquisition was completed on 1/1, and you are now responsible for acquisition accounting consolidated financial statements for the first three months (first quarter of 2018).Objective #3: Adjust Schedule 3 for Acquisition Values

Because the project uses a situation you may encounter in practice, the reported results of New Castle Coffee on 3/31 included in Schedule 3 do not include any adjustments for the acquisition.Remember that the accounting department of New Castle Coffee would keep functioning as if the acquisition never occurred until new values were established. In practice, this is often a number of months following acquisition to complete the appropriate accounting.

1. Using only the Balance Sheet amounts in Schedule 3, calculate new balances by using the differences identified in #4 above and adding/subtracting to Schedule 3 amounts.

Only the Cash account through Retained Earnings are required to be adjusted.For example:

Land

Schedule 3 Reported $50,000

Increase in Acquisition Value + $10,000

Schedule 3 Adjusted $60,000

Elimination journal entry for New Castle Coffee Di. Cr. Gain on Acquisition $42,000 Accumulated Depreciation $42,000 Land $10,000 Building $8,000 Equipment $7,000 Debt Setup Costs, net $5,000 Accounts Payable $3,000 Accrued Payroll and Benefits $2,000 New Castle Coffee $122,000 R Comparison of journal entry values to Schedule 2 The following are some ways in which the values in the journal entry differ from the ones in Schedule 2: . The fair market value of the fixed assets, which is absent from Schedule 2, is included in the journal entry. . The drop in accumulated depreciation, which is absent from Schedule 2, is reflected in the journal entry. . The journal entry comprises accrued wages and benefits as well as the assumption of accounts payable, which are not listed in Schedule 2.Schedule 3 Trial Balance of New Castle Coffee as of 3/31/18 Accounts Debit Credit Checking S 1,500 Money Market Account 3,000 Accounts Receivable 21,000 Allowance for Uncollectable Accounts 2,875 Inventory 13,765 Prepaid Rent - Current 3,750 Land 50,000 Building 85,000 Equipment 48,000 Construction in Process S. 16,000 Accumulated Depreciation $ 16,281 Debt Set-up Costs, net S 4,687 Accounts Payable 12,800 Accrued Payroll and Benefits 6,000 Accrued Expenses 5.673 Income Tax Payable 2.500 Notes Payable (12/31/16) 100,000 Advance Payable - Java 8,000 Deferred Tax Liability 3,800 Common Stock (1,000 shares O/S, $1 par) 1,000 Additional Paid-In Capital 74,000 Retained Earnings (Loss) - Beginning 5,700 Sales - Coffee 65,000 Sales - Beans 25,000 Sales - Other 8,000 Allowance for Returns - Beans 1,000 Allowance for Returns - Other 400 Cost of Goods Sold - Coffee 39,000 Cost of Goods Sold - Beans 10,000 Cost of Goods Sold - Other 3,600 Selling Expenses 6,000 Professional Fees 4,800 Depreciation - Building (30 years) 31 Depreciation - Equipment (10 years) S 1,250 Bad Debt Expense 600 Administrative Salaries 12,000 Other SG&A Expenses S 4,000 Interest Income - Money Market S 15 Interest Expense - Notes Payable 2,000 Interest Expense - Amortization of Debt Set-Up 313 Income Tax Provision 1948 Totals $ 336,644 $ 336,644