Comprehensive Review Problem: Harriet's Hats, Inc. Harriet's Hats is a fictional company. The following information includes the balance sheet as of December 31, 2020, and the details of the transactions that occurred during 2021. Background: Harriet's Hats is a hat retailer (in other words, Harriet's buys hats from a hat manufacturer and then sells them in their stores). Transactions for 2021 are representative of such a company's business activities. HINT: Read through the entire assignment at least twice before beginning to do any work. This will help you familiarize yourself with all of the important facts. Required: 1. 2. Using the T-accounts provided, record the transactions that occurred during 2021. Prepare the balance sheet, retained earnings statement, and income statement for Harriet's Hats, Inc. for the year ended December 31, 2021. Transactions for 2021: 1. Sales and Accounts Receivable a. During 2021, each hat had a sales price of $28. All sales were made on account. b. Cash collections on account amounted to $40,000. C. During 2021, Harriet's identified $300 of receivables as being uncollectible and wrote them off. d. Harriet's follows a percentage-of-receivables approach to estimate its accounts receivable that will become uncollectible. As of the end of 2021, Harriet's estimates that 10% of its receivables will be uncollectible. 2. Inventory a. Harriet's began 2021 with 350 hats which had a cost of $8 each. Employees physically counted 425 hats remaining in the warehouse at the end of 2021. Harriet's uses a periodic FIFO inventory system to cost their inventory. The following purchases (all on account) were made during 2021: (1) January 15th - 400 hats @ $9.00 each (2) March 23rd 435 hats @ $7.5862 each (Hints: round to the nearest integer, total purchase is $3,300) (3) July 2nd - 340 hats @ $15.00 each (4) October 31st - 410 hats @ 14.00 each b. During 2021, Harriet's made cash payments to inventory suppliers totaling $20,000. 3. Property, Plant and Equipment a. Harriet's uses straight-line depreciation for all of its store fixtures and office equipment. b. Below is a schedule of the store fixtures and office equipment Harriet's had in place at the end of 2020. FIXTURES AND EQUIPMENT (as of December 31, 2020) ID # Historical Cost Estimated Estimated Salvage Date acquired Useful Life Value 1256 $11,000 10 years $1,000 Jan. 1, 2015 1876 $1,900 5 years $300 Jan. 1, 2017 4299 $24,000 5 years $4,000 Jan. 1, 2020 C. On January 1, new store fixtures were purchased for $4,000 in cash. Harriet's expects the fixtures to have a 5 year useful life and a $400 salvage value. d. On July 1, office equipment (ID#1876) was sold for $480. 4. Debt a. On September 1, 2021, Harriet's paid-off the note payable that was outstanding at the beginning of the period. The note had an 6% interest rate, had been issued on September 1, 2020, and required semiannual interest payments on February 28 and August 31. b. Also on September 1, 2021, Harriet's borrowed $3,600 on a new note payable. The new note carries a 5% interest rate with similar payment terms as the note Harriet's just paid-off. a. 5. Operations Harriet's made two rent payments of $1,800 during 2021 (on March 1 and September 1). The payments were for rent on the store building and were prepaid for six months each. The balance in the prepaid account at the end of 2021 represents the rent for January and February 2015. b. Cash paid out during 2021 for wages totaled $12,000. Records indicate that salaries for the last week of December amounted to $500 and would be paid at the end of the first week in January (a two-week pay period). C. Other expenses (paid in cash) totaled $2,000. 6. Income Taxes a. In March of 2021, Harriet's paid their 2020 income taxes. Harriet's has a 25% income tax rate for both 2020 and 2021. 7. Common Stock a. Dividends of $3,000 were declared and paid during 2021. b. New common stock was issued for $15,000 during 2021. Harriet's Hats, Inc. Balance Sheet December 31, 2020 $15,000 5,000 (500) Assets Cash Accounts Receivable Less: Allowance for Bad Debts Net Accounts Receivable Prepaid Rent Inventory Total Current Assets Property, Plant, and Equipment Less: Accumulated Depreciation Net Property, Plant, and Equipment Total Assets 4,500 500 2.800 22,800 36,700 (13,600) 23,100 $45,900 Liabilities and Owner's Equity Accounts Payable Wages Payable Interest Payable Income Taxes Payable Notes Payable Total Current Liabilities $2,500 170 60 300 3,000 6,030 Common Stock Retained Earnings Total Liabilities and Owner's Equity 18,804 21,066 $39,870