Case Study #$1-$ Chapters $1$ to $6$

You are taking over the accounting function at Cozy Fireplaces Inc. on January $3,2021.$ The former accountant has provided you with the following unadjusted trial balance at the end of the first year of operations with a summary of transactions and adjustments that he did not complete:

Cozy Fireplaces Inc.

Unadjusted Trial Balance

At December $31,2020$

$\backslash$table$[[,$Debit balances,Credit balances$],[$Bank account,$$89,000,],[$Accounts receivable,$36,000,],[$Allowance for doubtful accounts,$2,000,],[$Inventory$,102,000,],[$Supplies on$-$hand,$5,000,],[$Prepaid insurance,$3,000,],[$Land$,80,000,],[$Building$,130,500,],[$Accumulated depreciation $-$ building,,$$0],[$Accounts payable,,$21,400],[$Wages payable,,$0],[$Interest payable,,$0],[$Unearned revenue,,$12,400],[$Dividends payable,,$0],[$Note payable,,$0],[$Bank loan payable,,$40,000],[$Common shares,,$150,000],[$Retained earnings,,$0],[$Dividends declared,$6,000,],[$Sales revenue,,$845,700],[$Cost of goods sold,$482,000,],[$Wages expense,$95,000,],[$Insurance expense,$36,000,],[$Supplies expense,$0,],[$Depreciation expense,$0,],[$Interest expense,$0,],[$Electricity expense,$2,000,],[$Bad debts expense,$0,0,],[$Bank charges expense,$1,000,],[,$$$1,069,500,$$$1,069,500]]$

$1|$ P age Case Study #$1-$ Chapters $1$ to $6$

Required: Use the Accounting Records Excel file to complete this assignment. The assignment takes you

through the accounting cycle and includes bank reconciliation as well as financial statement preparation

and analysis.

Part $1-$ Regular Journal Entries

Prepare journal entries to record the regular transactions $($see next page$)$ and post these journal

entries to the general ledger.

Review the unadjusted trial balance as of December $31,2020.$

Part $2-$Adjusting Journal Entries

Prepare adjusting journal entries $($see next page$)$ and post these journal entries to the general

ledger.

Review the adjusted trial balance as of December $31,2020.$

Part $3-$Financial Statements

Prepare the Statement of Income $($use Page $4-16$ of the textbook as an example$),$ Statement of

Changes in Equity $($use Page $3-27$ of the textbook as an example$),$ and Statement of Financial

Position $($use Page $3-27$ to $3-28$ of the textbook as an example$).$

Part $4-$ Closing Journal Entries

What accounts will have zero balances after closing entries are posted? And what should the

balance in the Retained Earnings general ledger account be after closing entries are posted to

the general ledger? Note: you should not prepare and post closing journal entries.

Part $5-$ Analysis of Performance

Using the formula sheet on the last page, compute three ratios $($gross profit margin, net profit

margin, and basic earnings per share$)$ and evaluate Cozy Fireplaces Inc.$\text{'}$s performance for its

first year of operations against the following standards and expectations:

Retail fireplace industry has a gross profit margin of $45\%$ and each dollar of sales results

in $30$ cents of profits.

Investors buying common shares were promised earnings per share of $$14$ per share.

Congratulations, you completed the tasks at hand as the new accountant! Case Study #$1-$ Chapters $1$ to $6$

Regular transactions that the former accountant has not recorded in the accounting records:

December $1,2020,$ issued $1,000$ common shares for $$10,000.$ After this issuance, there are

$21,000$ shares issued $($i$.$e$.,20,000$ shares issued on January $1,2020,$ and these $1,000$ shares$).$

December $27,2020,$ received $$7,000$ from a customer for the amount owed on their account.

December $30,2020,$ purchased inventory on account for $$25,000.$

December $31,2020,$ borrowed $$10,000$ by signing a Note Payable to Border Credit Union.

Interest of $6\%$ per annum. The principal is to be paid on December $31,2021.$

December $31,2020,$ paid $$6,000($Cheque #$451)$ to the supplier of inventory purchased on

December $30($see Transaction #$3$ above$).$

December $31,2020,$ cash sales for the day of $$2,000$ was deposited in the bank. The cost of

inventory for these sales was $$900.$

December $31,2020,$ declared dividends of $$8,000$ payable on January $10,2021.$

Adjustments at year$-$end that the former accountant has not recorded in the accounting records:

Prepare a bank reconciliation and record the adjusting entries from the bank reconciliation $($date

all the journal entries as December $31).$

The Bank statement shows a balance of $$115,830.$

The bank statement has two transactions that are not recorded in the general ledger: bank

charges of $$20$ and EPCOR direct withdrawal of $$150$ for the December electricity charges.

Regular transaction #$5$ above is not on the bank statement because the supplier has not

cashed the cheque.

Regular tra