Eliminate Other Assets - Holding account balance on Java the Hut Ledgers

1. Prepare the appropriate journal entries to recognize the first quarter

transactions, currently reported in Other Assets - Holding in the balance sheet of Java the Hut (Parent Company) outlined in Schedule 1.

The goal of the journal entries is to eliminate the balance in the Other Asset - Holding account with new accounts to reflect the appropriate accounting recognition

Schedule 1

Java the Hut Account Analysis

Other Assets - Holding Account Analysis as of 3/31/18

Acquisition of New Castle Coffee on 1/1/18

Stock acquisition of 1,000 shares outstanding (Par Value $1.00)

Percent of shares outstanding 100%

Purchase price at settlement $150,000

Professional fees incurred $12,000

Debt set-up fees (revolving credit agreement) $6,000

Acquisition of New Castle Coffee on 1/1/18 1ss,ooo

Equity investment in Newark Coffee Activity

Purchase of 40% interest of shares outstanding 1/1 $44,000

Dividends received on 3/1 in cash $ (2,000)

Equity investment in Newark Coffee Activity $42,000

Other Assets - Holding Account Analysis as of 3/31/18 $210,000

$ 44,000

$ (2,000)

I$ 42,000 I

I$ 210,000 I

Schedule 5 Trial Balance of Java the Hut as of 03/31/12 Credit Debit 1,500 8,000 48,000 960 54,024 3,197 185,000 155,000 98,000 25,200 58,017 11,000 8,000 210,000 Accounts DNB Checking T. Rowe money market account Accounts Receivable Allowance for uncollectible accounts Inventory Deferred tax asset Land Building Equipment Construction in progress Accumulated Depreciation Debt set up costs, net Advance receivable- NCC Other assets - holding Accounts payable Accrued payroll and benefits Accrued expenses Note payable 12/31/16 Revolving credit loan (committed to 12/31/15) Deferred tax liability (long term) Common stock 10,000 shares, par $10.00 Additional paid in capital Retained earnings(loss) - beginning Sales - coffee Sales - beans Sales - other Allowance for returns -beans Allowance for returns - other Cost of goods sold - coffee Cost of goods sold - beans Cost of goods sold - other Selling expenses Professional fees Depreciation - Buildings (30 years - straight line) Depreciation - Equipment (10 years - straight line) Bad debt expense Administrative salaries Other SG&A expenses Interest income - money market Interest expense - note payable Interest expense - revolving credit Interest expense - amortization of debt set up costs Income tax provision 48,200 11,000 13,196 175,000 236,421 4,900 100,000 125,000 18,500 165,000 65,400 16,500 3,500 650 107,250 29,430 7,425 14,800 8,017 1,292 2,450 200 26,500 9,396 40 3,500 5,319 1,000 10,484 I total 1,038,134! 1,038,134! Schedule 6 IntercompanymTransactions Intercompany Sales -1Q12 Java the Hut coffee bean sales to New Castle Coffee 1s.soo Intercompany Inventory - as of 03/31/12 Coffee bean inventory from Java the Hut sales to New Castle Coffee at 03/31/11. 3.soo Equity investment - Newark Coffee Earnings Earnings reported by Newark Coffee for the first quarter of 2012 were 1 $ 10.2so I Schedule 2 Trial Balance of New Castle Coffee as of 01/01/18 Debit Credit 1,000 4,000 15,000 2,000 Accounts WTC Checking WTC money market account Accounts Receivable Allowance for uncollectible accounts Inventory Prepaids rent -current Land Building Equipment Accumulated Depreciation Debt set up costs, net Accounts payable Accrued payroll and benefits Accrued expenses Note payable 12/31/16 Common stock 1,000 shares, par $1.00 Additional paid in capital Retained eamings{loss) 8,000 5,000 50,000 85,000 48,000 15,000 5,000 12,000 3,000 2,000 100,000 1,000 74,000 12,000 | Total 221,000 221,000 Schedule 2A New Castle Coffee Acquisition Support Appraisal Results The appraisal of the fixed assets resulted in the following fair market values: $ Land Building Equipment 60,000 92,000 45,000 Fixed Assets Fair Market Value I$ 11,000 Due Diligence Review As part of the due diligence process, it was determined that New Castle Coffee was not accruing for income taxes. The following balances were indicated. Income tax payable {current liability) Deferred tax liability {long-term liability) $ $ 2,500 3,800 Schedule 3 rial Balance of New Castle Coffee as of 03/31/18 Credit Debit 1,500 3,000 21,000 2,875 13,765 3,750 50,000 85,000 48,000 16,000 16,281 4,687 Accounts WTC Checking WTC money market account Accounts Receivable Allowance for uncollectible accounts Inventory Prepaids rent -current Land Building Equipment Construction in progress Accumulated Depreciation Debt set up costs, net Accounts payable Accrued payroll and benefits Accrued expenses Note payable 12131/16 Advance payable - Java Common stock 1,000 shares, par $1.00 Additional paid in capital Retained earnings(loss) - beginning Sales - coffee Sales - beans Sales - other Allowance for returns - beans Allowance for returns - other Cost of goods sold - coffee Cost of goods sold - beans Cost of goods sold - other Selling expenses Professional fees Depreciation - Buildings (30 years) Depreciation - Equipment (10 years) Bad debt expense Administrative salaries 12,800 6,000 5,673 100,000 8,000 1,000 74,000 12,000 65,000 25,000 8,000 1,000 400 39,000 10,000 3,600 6,000 4,800 31 1,250 600 12,000 Schedule 4 Trial Balance of Java the Hut as of 12/31/17 (Beginning of Year Balances - needed for cash flow statement only) Credit Debit 800 18,600 46,800 936 51,250 3,000 185,000 155,000 98,000 4,800 Accounts DNB Checking T. Rowe money market account Accounts Receivable Allowance for uncollectible accounts Inventory Deferred tax asset Land Building Equipment Construction in progress Accumulated Depreciation Debt set up costs, net Advance receivable- Accounts payable Accrued payroll and benefits Accrued expenses Note payable 12/31/21 Revolving credit loan (committed to 12/31/20) Deferred tax liability (long term) Common stock 10,000 shares, par $10.00 Additional paid in capital Retained eamings(loss) 54,275 12,000 47,250 13,200 8,900 175,000 27,749 4,440 100,000 125,000 18,500 Total 375,250 575,250 | Schedule 5 Trial Balance of Java the Hut as of 03/31/12 Credit Debit 1,500 8,000 48,000 960 54,024 3,197 185,000 155,000 98,000 25,200 58,017 11,000 8,000 210,000 Accounts DNB Checking T. Rowe money market account Accounts Receivable Allowance for uncollectible accounts Inventory Deferred tax asset Land Building Equipment Construction in progress Accumulated Depreciation Debt set up costs, net Advance receivable- NCC Other assets - holding Accounts payable Accrued payroll and benefits Accrued expenses Note payable 12/31/16 Revolving credit loan (committed to 12/31/15) Deferred tax liability (long term) Common stock 10,000 shares, par $10.00 Additional paid in capital Retained earnings(loss) - beginning Sales - coffee Sales - beans Sales - other Allowance for returns -beans Allowance for returns - other Cost of goods sold - coffee Cost of goods sold - beans Cost of goods sold - other Selling expenses Professional fees Depreciation - Buildings (30 years - straight line) Depreciation - Equipment (10 years - straight line) Bad debt expense Administrative salaries Other SG&A expenses Interest income - money market Interest expense - note payable Interest expense - revolving credit Interest expense - amortization of debt set up costs Income tax provision 48,200 11,000 13,196 175,000 236,421 4,900 100,000 125,000 18,500 165,000 65,400 16,500 3,500 650 107,250 29,430 7,425 14,800 8,017 1,292 2,450 200 26,500 9,396 40 3,500 5,319 1,000 10,484 I total 1,038,134! 1,038,134! Schedule 6 IntercompanymTransactions Intercompany Sales -1Q12 Java the Hut coffee bean sales to New Castle Coffee 1s.soo Intercompany Inventory - as of 03/31/12 Coffee bean inventory from Java the Hut sales to New Castle Coffee at 03/31/11. 3.soo Equity investment - Newark Coffee Earnings Earnings reported by Newark Coffee for the first quarter of 2012 were 1 $ 10.2so I Schedule 2 Trial Balance of New Castle Coffee as of 01/01/18 Debit Credit 1,000 4,000 15,000 2,000 Accounts WTC Checking WTC money market account Accounts Receivable Allowance for uncollectible accounts Inventory Prepaids rent -current Land Building Equipment Accumulated Depreciation Debt set up costs, net Accounts payable Accrued payroll and benefits Accrued expenses Note payable 12/31/16 Common stock 1,000 shares, par $1.00 Additional paid in capital Retained eamings{loss) 8,000 5,000 50,000 85,000 48,000 15,000 5,000 12,000 3,000 2,000 100,000 1,000 74,000 12,000 | Total 221,000 221,000 Schedule 2A New Castle Coffee Acquisition Support Appraisal Results The appraisal of the fixed assets resulted in the following fair market values: $ Land Building Equipment 60,000 92,000 45,000 Fixed Assets Fair Market Value I$ 11,000 Due Diligence Review As part of the due diligence process, it was determined that New Castle Coffee was not accruing for income taxes. The following balances were indicated. Income tax payable {current liability) Deferred tax liability {long-term liability) $ $ 2,500 3,800 Schedule 3 rial Balance of New Castle Coffee as of 03/31/18 Credit Debit 1,500 3,000 21,000 2,875 13,765 3,750 50,000 85,000 48,000 16,000 16,281 4,687 Accounts WTC Checking WTC money market account Accounts Receivable Allowance for uncollectible accounts Inventory Prepaids rent -current Land Building Equipment Construction in progress Accumulated Depreciation Debt set up costs, net Accounts payable Accrued payroll and benefits Accrued expenses Note payable 12131/16 Advance payable - Java Common stock 1,000 shares, par $1.00 Additional paid in capital Retained earnings(loss) - beginning Sales - coffee Sales - beans Sales - other Allowance for returns - beans Allowance for returns - other Cost of goods sold - coffee Cost of goods sold - beans Cost of goods sold - other Selling expenses Professional fees Depreciation - Buildings (30 years) Depreciation - Equipment (10 years) Bad debt expense Administrative salaries 12,800 6,000 5,673 100,000 8,000 1,000 74,000 12,000 65,000 25,000 8,000 1,000 400 39,000 10,000 3,600 6,000 4,800 31 1,250 600 12,000 Schedule 4 Trial Balance of Java the Hut as of 12/31/17 (Beginning of Year Balances - needed for cash flow statement only) Credit Debit 800 18,600 46,800 936 51,250 3,000 185,000 155,000 98,000 4,800 Accounts DNB Checking T. Rowe money market account Accounts Receivable Allowance for uncollectible accounts Inventory Deferred tax asset Land Building Equipment Construction in progress Accumulated Depreciation Debt set up costs, net Advance receivable- Accounts payable Accrued payroll and benefits Accrued expenses Note payable 12/31/21 Revolving credit loan (committed to 12/31/20) Deferred tax liability (long term) Common stock 10,000 shares, par $10.00 Additional paid in capital Retained eamings(loss) 54,275 12,000 47,250 13,200 8,900 175,000 27,749 4,440 100,000 125,000 18,500 Total 375,250 575,250 |