Question
Bledsoe has developed plans to expand into the wholesale flower market and is in the process of negotiating a bank loan to finance the expansion.
Bledsoe has developed plans to expand into the wholesale flower market and is in the process of negotiating a bank loan to finance the expansion. The bank is requesting 2018 financial statements prepared on the accrual basis of accounting from Bledsoe. During the course of a review engagement of Bledsoe, your firm, obtained the following information:
- Amounts due from customers totaled $142,000 at 12/31/2018. During the year the company wrote off $7,400 of receivables that were deemed to be uncollectible. An analysis of the receivables revealed that an estimated 3% of the balance will probably not be collected in 2019. There were no uncollectable receivables estimated at 12/31/2017.
- Unpaid invoices for flower purchases totaled $20,500 at December 31, 2018.
- The inventory totaled $76,800 based on a physical count of the goods at December 31, 2018. The inventory was priced at cost, which approximates market value.
- On May 1, 2018, Bledsoe paid $8,700 to renew its comprehensive insurance coverage for one year. The premium on the previous one-year policy, which expired on April 30, 2018, was $7,800. No adjustment was made in the prior year, Bledsoe had never heard of a prepaid.
- During 2018, Bledsoe redid the parking lot at their North retail store. Bledsoe paved and fenced in the lot at a cost of $50,000. The improvements were completed on July 2, 2018, and have an estimated useful life of 10 years. Depreciation on furniture and fixtures was $15,000 for 2018.
- Bledsoe is being sued for $100,000. Bledsoe's attorney believes that an unfavorable outcome is probable and that a reasonable settlement is $65,000.
- All employees are paid weekly on Friday. The average payroll is $3,000 (6 day work week) per week. Employees were last paid on Friday, December 28th, 2018 for the week ended December 22nd. Although the employees did not work on Christmas Day, Bledsoe pays them for the day.
- Bledsoe's has made estimated tax payments of $10,000 per quarter for the first three quarters of 201 Bledsoe's estimated tax rate is 25%.
- Bledsoe's took out a 2 year note payable on April 1, 2018. The note bears interest at 4%. Principal and interest are due at maturity.
- The company had two locations and due to poor performance, they decided to discontinue operations related to the south location. The revenue for this location (which is included in the above trial balance) amounted to $83,000 and the expenses, $91,000 (purchases $50,000, salaries $26,000 and rent $15,000). The company disposed of all assets of the south location for a loss of $10,000 ($31,000 original cost with accumulated depreciation of $17,000).
- The investments account is comprised of two investments. One $100,000 bond was purchased at face value and Bledsoes intends to hold until it matures. The interest on these bonds are 3% and is paid annually on January 31. Bledsoe purchased these bonds on September 1st of the current year. The fair value of these bonds are $96,000. The other investment are shares of Google stock, which were purchased on 09/04/18 for $1,197/share. Assume the closing price of Google on 12/31/18, was $1,036/share.
Required:
a. Using the information provided, prepare a 10-column worksheet for Bledsoe Flowers for the year ended December 31, 2018.
b. Prepare a separate worksheet showing your adjusting entries in good form.
c. Prepare accrual basis financial statements for 2018 to be presented to the bank. You should include a multiple step income statement, statement of retained earnings and a classified balance sheet. A statement of cash flow is not required.
Your final product should be of professional quality and worth the $9,800 engagement fee Bledsoes is paying your firm for the 2018 review of their financials
UNAJUSTED TRIAL BALANCE
Bledsoe Flowers Inc. | |||||
Trial Balance (Unadjusted) | |||||
31-Dec-18 | |||||
Dr. | Cr. | ||||
Cash | $25,600 | ||||
Accounts receivable, 12/31/17 | 116,200 | ||||
Inventory, 12/31/17 | 62,000 | ||||
Investments, at cost | 219,700 | ||||
Furniture and Fixtures | 213,200 | ||||
Accumulated depreciation, 12/31/17 | $102,400 | ||||
Accounts payable, 12/31/17 | 17,000 | ||||
Capital stock, $10 par value | 50,000 | ||||
Retained earnings, 12/31/2017 | 137,000 | ||||
Sales | 877,700 | ||||
Notes payable, due 3/31/20 | 200,000 | ||||
Purchases | 405,100 | ||||
Land improvement expense | 50,000 | ||||
Salaries expense | 174,000 | ||||
Payroll Taxes | 12,400 | ||||
Income tax expense | 30,000 | ||||
Insurance expense | 8,700 | ||||
Bad Debt expense | 7,400 | ||||
Rent expense | 34,200 | ||||
Utilities expense | 12,600 | ||||
Travel and entertainment expense | 13,000 | ||||
TOTALS | $1,384,100 | $1,384,100 |
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