Case: Northern Reflections Northern Reflections sells outdoor sporting equipment. You have been working for the company since its inception a few years ago and have been promoted to be their accounting manager. They use the perpetual inventory system and use the weigted average method to determine value for the inventory The opening balances for the month of September are as follows: Northern Reflections Balance Sheet As at September 30, 2020 Assets Current Assets Cash $27,200 Accounts Receivable 16,000 Merchandise Inventory 13,000 Total Current Assets Proptery, Plant & Equipment Equipment 130,000 Accumulated Depreciation 35.000 Total Assets 56,200 95.000 $151,2001 Account Liabilities Current Liabilities Accounts Payable $16,200 Current Portion of Bank Loan 6,000 Total Current Liabilities $22,200 Non-Current Liabilities Non-Current Portion of Bank Loan 18.000 Total Liabilities $40,200 Shareholders' Equity Common Shares 50,000 Retained Earnings 61.000 Total Shareholders' Equity 111.000 Total Liabilities & Equity $151,200 The bank loan has an annual interest rate of 5% and has monthly principal payment of $500. The inventory figure includes 500 units purchased at $26.00 each. The Chart of Accounts (Gl no. is shown below: Account Description Account Account Description ASSETS REVENUE Cash 101 Sales Revenue Petty Cash 105 Sales Discounts Accounts Receivable 110 Sales Returns and Allowances Merchandise Inventory 120 Interest Revenue Prepaid Insurance 125 EXPENSES Equipment 140 Cost of Goods Sold Accumulated Depreciation 145 Employee Benefits Expense LIABILITIES Depreciation Expense Accounts Payable 200 Insurance Expense interest Payable 205 Interest Expense CPP Payable Office Supplies Expense El Payable 225 Rent Expense Income Tax Payable 230 Salaries Expense Salaries Payable 235 Bank Charges Expense Unearned Revenue 240 Maintenance Expense Bank Loan 245 Entertainment Expense SHAREHOLDERS' EQUITY Common Shares 300 Retained Earnings 305 400 405 410 420 500 510 S15 520 525 530 535 540 545 550 SSS Transactions for the month of October: Oct 1 Oct 2 Oct 5 Oct 5 Oct 7 Oct 8 Bought inventory from Outdoor Muzi on account, invoice #5455; 900 units at $28 each. Terms of the purchase were 4/10, net 30. Update the inventory table after each purchase. Sold goods to Outback Kian, 600 units at $80 each with invoice #4741. The invoice terms were 5/10, net 30. Update the inventory table after each sale. Paid $1,100 with cheque #143 to Outdoor Muzi for an amount owing from last month. Bought inventory from Climb Foe with cheque #144, 650 units at $29 per unit. Returned 150 defective units to Climb Foe and received cash. Received $800 from Firewood Bill for a sale on account last month. Outback Kian paid invoice #4741 on time and took advantage of the early payment discount. Prepared the payroll for October. Gross pay is $8,000, CPP is $408, El is $150 and income tax is $1,600. The employer matches CPP contributions and pays 1.4 times the El deduction. Use the general journal to record this. The cheque will be prepared later. Made monthly bank loan payment of $600 which includes $500 principal and $100 interest. Oct 10 Oct 31 Oct 31 Required: i) Record the transactions above in the general journal and then post amounts to the General Ledger. Note: Also remember to enter your posting references. ii) Use this chart to keep track of transactions that involved inventory values Purchases Sales Date Quantity Unit Cost Value Quantity Unit Cost Value Quantity 500 Balance Unit Cost 26.00 Value 13,000.00 Note: Don't forget to reduce the inventory account for the purchase return on Oct. 7 ii) Using the following information, prepare the bank reconciliation for October 31, 2020 Your staff accountant goes through the mail and opens the bank statement for the month of October provided by Fanshav Bank. It is shown below. Date Oct 2 Oct 5 Oct 8 Fanshawe Local Bank Prepared for Northern Reflections Information Withdrawal Deposit Opening Balance Deposit 14,200.00 Cha#143 1,100.00 Deposit 45,600.00 Deposit 4,350.00 Chh8240 2,400.00 Service Charge 60.00 interest 5.00 Balance 13,000.00 27,200.00 26,100.00 71,700.00 76,050.00 73,650.00 73,590.00 73,595.00 Oct 8 Oct 11 Oct 31 Oct 31 101) PR DR CR General Ledger Accounts Account: Cash Date Description Opening Balance Oct 5 Cha#143 Oct 5 Chg#144 Oct 7 Return of inventory Oct 8 Deposit Oct 10 Deposit G13 G13 G3 G3 G13 GL No: Balance (DR or CR) 27,200.00 DR 1,100.00 26,100.00 DR 18,850.00 7,250.00 CR 11,600.00 CR 12,400.00 CR 58,000.00 DR 4,350.00 800.00 45,600.00 Additional Information: a) The $14,200 is already recorded in the ledger last month. b) Cheque number of the company has only three (3) digits. Required: Prepare the October bank reconciliation for Northern Reflections using the bank statement and general ledger provided. Compare the information in the general ledger to the bank statement. Once reconciled, record the relevant journal entries in the general journal and post the entries in the general ledger to bring the company's record up to date. NOTE: DON'T FORGET TO RECORD ANY JOURNAL ENTRIES RESULTING FROM THE BANK RECONCILIATION IN THE GENERAL JOURNAL AND POST TO THE RELEVANT LEDGER ACCOUNTS Northern Reflections Bank Reconciliation Statement October 31, 2020 Cash balance per bank statement: Cash balance per books: Add: Add: Deduct: Deduct: Adjusted Bank Balance Adjusted Bank Balance iv) Prepare the financial statements for the month ended October 31, 2020. Northern Reflections Balance Sheet As at September 30, 2020 Assets Current Assets Cash $27,200 Accounts Receivable 16,000 Merchandise Inventory 13,000 Total Current Assets Proptery, Plant & Equipment Equipment 130,000 Accumulated Depreciation -35,000 Total Assets 56,200 95,000 $151,200 $16,200 6.000 $22,200 Liabilities Current Liabilities Accounts Payable Current Portion of Bank Loan Total Current Liabilities Non-Current Liabilities Non-Current Portion of Bank Loan Total Liabilities Shareholders' Equity Common Shares Retained Earnings Total Shareholders' Equity Total Liabilities & Equity 18,000 $40,200 50,000 61,000 111.000 $151,200 1) Prepare a multistep income statement. Northern Reflections Income Statement For the Month Ended October 31, 2020 2) Prepare a calculation of retained earnings Calculation of Retained Earnings For the Month Ended October 31, 2020 3) Prepare a classified balance sheet. Assume that $6,000 of the bank loan will be paid off in the next year. Northern Reflections Balance Sheet As at October 31, 2020 a) Calculate the current ratio as at October 31, 2020 b) Does Northern Reflections have a good or bad current ratio? Explain why or why not. c) Calculate the inventory days on hand ratio as at October 31, 2020. (Since this is for the month, do not multiply by 365 in the formula. Instead multiply by 31 days.) d) Last month, the inventory days on hand ratio was 37 days. Has the ratio improved? Why or why not? e) Calculate the debt to equity ratio as at October 31, 2020. f) Calculate the gross profit margin as at October 31, 2020. g) Last month, the gross profit margin percentage was 75%. What could have caused this decrease in gross margin percentage? h) Calculate the inventory turnover as at October 31, 2020. i) If inventory turnover last month was 0.837, is the company holding on to inventory for a longer or shorter period of time? Case: Northern Reflections Northern Reflections sells outdoor sporting equipment. You have been working for the company since its inception a few years ago and have been promoted to be their accounting manager. They use the perpetual inventory system and use the weigted average method to determine value for the inventory The opening balances for the month of September are as follows: Northern Reflections Balance Sheet As at September 30, 2020 Assets Current Assets Cash $27,200 Accounts Receivable 16,000 Merchandise Inventory 13,000 Total Current Assets Proptery, Plant & Equipment Equipment 130,000 Accumulated Depreciation 35.000 Total Assets 56,200 95.000 $151,2001 Account Liabilities Current Liabilities Accounts Payable $16,200 Current Portion of Bank Loan 6,000 Total Current Liabilities $22,200 Non-Current Liabilities Non-Current Portion of Bank Loan 18.000 Total Liabilities $40,200 Shareholders' Equity Common Shares 50,000 Retained Earnings 61.000 Total Shareholders' Equity 111.000 Total Liabilities & Equity $151,200 The bank loan has an annual interest rate of 5% and has monthly principal payment of $500. The inventory figure includes 500 units purchased at $26.00 each. The Chart of Accounts (Gl no. is shown below: Account Description Account Account Description ASSETS REVENUE Cash 101 Sales Revenue Petty Cash 105 Sales Discounts Accounts Receivable 110 Sales Returns and Allowances Merchandise Inventory 120 Interest Revenue Prepaid Insurance 125 EXPENSES Equipment 140 Cost of Goods Sold Accumulated Depreciation 145 Employee Benefits Expense LIABILITIES Depreciation Expense Accounts Payable 200 Insurance Expense interest Payable 205 Interest Expense CPP Payable Office Supplies Expense El Payable 225 Rent Expense Income Tax Payable 230 Salaries Expense Salaries Payable 235 Bank Charges Expense Unearned Revenue 240 Maintenance Expense Bank Loan 245 Entertainment Expense SHAREHOLDERS' EQUITY Common Shares 300 Retained Earnings 305 400 405 410 420 500 510 S15 520 525 530 535 540 545 550 SSS Transactions for the month of October: Oct 1 Oct 2 Oct 5 Oct 5 Oct 7 Oct 8 Bought inventory from Outdoor Muzi on account, invoice #5455; 900 units at $28 each. Terms of the purchase were 4/10, net 30. Update the inventory table after each purchase. Sold goods to Outback Kian, 600 units at $80 each with invoice #4741. The invoice terms were 5/10, net 30. Update the inventory table after each sale. Paid $1,100 with cheque #143 to Outdoor Muzi for an amount owing from last month. Bought inventory from Climb Foe with cheque #144, 650 units at $29 per unit. Returned 150 defective units to Climb Foe and received cash. Received $800 from Firewood Bill for a sale on account last month. Outback Kian paid invoice #4741 on time and took advantage of the early payment discount. Prepared the payroll for October. Gross pay is $8,000, CPP is $408, El is $150 and income tax is $1,600. The employer matches CPP contributions and pays 1.4 times the El deduction. Use the general journal to record this. The cheque will be prepared later. Made monthly bank loan payment of $600 which includes $500 principal and $100 interest. Oct 10 Oct 31 Oct 31 Required: i) Record the transactions above in the general journal and then post amounts to the General Ledger. Note: Also remember to enter your posting references. ii) Use this chart to keep track of transactions that involved inventory values Purchases Sales Date Quantity Unit Cost Value Quantity Unit Cost Value Quantity 500 Balance Unit Cost 26.00 Value 13,000.00 Note: Don't forget to reduce the inventory account for the purchase return on Oct. 7 ii) Using the following information, prepare the bank reconciliation for October 31, 2020 Your staff accountant goes through the mail and opens the bank statement for the month of October provided by Fanshav Bank. It is shown below. Date Oct 2 Oct 5 Oct 8 Fanshawe Local Bank Prepared for Northern Reflections Information Withdrawal Deposit Opening Balance Deposit 14,200.00 Cha#143 1,100.00 Deposit 45,600.00 Deposit 4,350.00 Chh8240 2,400.00 Service Charge 60.00 interest 5.00 Balance 13,000.00 27,200.00 26,100.00 71,700.00 76,050.00 73,650.00 73,590.00 73,595.00 Oct 8 Oct 11 Oct 31 Oct 31 101) PR DR CR General Ledger Accounts Account: Cash Date Description Opening Balance Oct 5 Cha#143 Oct 5 Chg#144 Oct 7 Return of inventory Oct 8 Deposit Oct 10 Deposit G13 G13 G3 G3 G13 GL No: Balance (DR or CR) 27,200.00 DR 1,100.00 26,100.00 DR 18,850.00 7,250.00 CR 11,600.00 CR 12,400.00 CR 58,000.00 DR 4,350.00 800.00 45,600.00 Additional Information: a) The $14,200 is already recorded in the ledger last month. b) Cheque number of the company has only three (3) digits. Required: Prepare the October bank reconciliation for Northern Reflections using the bank statement and general ledger provided. Compare the information in the general ledger to the bank statement. Once reconciled, record the relevant journal entries in the general journal and post the entries in the general ledger to bring the company's record up to date. NOTE: DON'T FORGET TO RECORD ANY JOURNAL ENTRIES RESULTING FROM THE BANK RECONCILIATION IN THE GENERAL JOURNAL AND POST TO THE RELEVANT LEDGER ACCOUNTS Northern Reflections Bank Reconciliation Statement October 31, 2020 Cash balance per bank statement: Cash balance per books: Add: Add: Deduct: Deduct: Adjusted Bank Balance Adjusted Bank Balance iv) Prepare the financial statements for the month ended October 31, 2020. Northern Reflections Balance Sheet As at September 30, 2020 Assets Current Assets Cash $27,200 Accounts Receivable 16,000 Merchandise Inventory 13,000 Total Current Assets Proptery, Plant & Equipment Equipment 130,000 Accumulated Depreciation -35,000 Total Assets 56,200 95,000 $151,200 $16,200 6.000 $22,200 Liabilities Current Liabilities Accounts Payable Current Portion of Bank Loan Total Current Liabilities Non-Current Liabilities Non-Current Portion of Bank Loan Total Liabilities Shareholders' Equity Common Shares Retained Earnings Total Shareholders' Equity Total Liabilities & Equity 18,000 $40,200 50,000 61,000 111.000 $151,200 1) Prepare a multistep income statement. Northern Reflections Income Statement For the Month Ended October 31, 2020 2) Prepare a calculation of retained earnings Calculation of Retained Earnings For the Month Ended October 31, 2020 3) Prepare a classified balance sheet. Assume that $6,000 of the bank loan will be paid off in the next year. Northern Reflections Balance Sheet As at October 31, 2020 a) Calculate the current ratio as at October 31, 2020 b) Does Northern Reflections have a good or bad current ratio? Explain why or why not. c) Calculate the inventory days on hand ratio as at October 31, 2020. (Since this is for the month, do not multiply by 365 in the formula. Instead multiply by 31 days.) d) Last month, the inventory days on hand ratio was 37 days. Has the ratio improved? Why or why not? e) Calculate the debt to equity ratio as at October 31, 2020. f) Calculate the gross profit margin as at October 31, 2020. g) Last month, the gross profit margin percentage was 75%. What could have caused this decrease in gross margin percentage? h) Calculate the inventory turnover as at October 31, 2020. i) If inventory turnover last month was 0.837, is the company holding on to inventory for a longer or shorter period of time