Henriettas Pine Bakery

Background

You are an Analyst for the professional service firm, BUSI 1043 LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. Given the outstanding feedback you received on your first engagement working for Big Spenders Inc., a Senior Manager in the Financial Advisory group requested your support on a compilation engagement.

Additional Information

Henriettas was established in 1963 when it first opened its doors in Dwight, Muskoka on highway 60. Over the past 50 years, there have been four owners and is currently owned by Carine & Geoff Harris who incorporated and took over the store on January 1, 2013. Their sons, Kyle and Nicholas have been an intricate part of the business from dishwashing to head bakers. Henrietta's has grown over the years with the addition of new items all the time, but the "Sticky Buns and Clouds" remain the most popular items amongst the 150 varieties of breads and pastries.

Henriettas runs out of 90 square meters (1,000 share feet) of space. It has one entrance into the bakery and doors leading out to highway 60. Henriettas pays $5,000 per month for the rental of the space. Carine and Geoff were able to negotiate with the landlord and were not required to pay the first months rend in advance. All of the rental payments are current and up to date. For the last two years, Henriettas has had a very reliable accountant prepare its year-end financial statements and everything has been correct. This year, Henriettas accountant retired and Geoff did the best he could recording his own financial information. For the information he was not sure about, he kept all of the required supporting documentation. Geoff hired your firm, BUSI 1043 LLP to prepare his financial statements for the year. Geoff supplied you with his unadjusted trial balance and the information in Exhibit I to assist you.

Supplementary information:

o The amount currently sitting in prepaids arose due the insurance policy last year. Geoff didnt know how to correct it, so he left it. This years insurance policy was purchased on November 1 for $9,000. The policy runs from November 1 to October 31 of each year.

o Geoff has a note that he owed $900 in wages to his employees for the period ending December 31^st.

o The loan was incurred when the bakery was opened. The loan carried an interest rate of 8%. The interest is payable two months after year end and the principal is due in 2019.

o Henriettas will sometimes book special events with small organizations that are allowed to pay after the event has taken place. On December 29^th, a small company had a gathering at the bakery. The company was billed $1,089 and has 30 days to pay it. Geoff has not yet recorded this in his financial records.

o Henriettas declared a dividend of $5,000 on December 30^th.

o Geoff didnt know how to record amortization for the year and so left it for you to record. Amortization for all assets is charged using a straight-line method by taking the cost of the asset and dividing it by its expected useful life. The assets have expected useful lives as follows:

o Computer: 5 years

o Bakery equipment: 10 years

o Furniture and fixtures: 20 years

o Furniture and fixtures: 20 years

o The information shows that Henriettas owes $400 for a telephone bill and #400 for electricity for December. These amounts have not been recorded yet.

						Adjusted Trial Balance
Account Name		Debit		Credit		Debit		Credit
cash		$ 35,000.00				$ 35,000.00
accounts receivable		$ 5,600.00				$ 6,689.00
food inventory		$ 21,000.00				$ 21,000.00
merchandise inventory		$ 62,500.00				$ 62,500.00
prepaids		$ 3,400.00				$ 7,500.00
computers		$ 30,000.00				$ 30,000.00
accumulated amort-computers				$ 12,000.00				$ 18,000.00
bakery equipment		$ 90,000.00				$ 90,000.00
accumulated amort-bakery eqpmt				$ 18,000.00				$ 27,000.00
furniture & fixtures		$ 150,000.00				$ 150,000.00
accumulated amort-furniture				$ 15,000.00				$ 22,500.00
accounts payable				$ 18,000.00				$ 18,000.00
accrued liabilities								$ 1,700.00
interest payable								$ 17,600.00
dividend payable								$ 5,000.00
long term loan				$ 220,000.00				$ 220,000.00
common shares				$ 50,000.00				$ 50,000.00
retained earnings				$ 22,000.00				$ 22,000.00
food revenue				$ 468,500.00				$ 469,589.00
internet revenue				$ 127,000.00				$ 127,000.00
merchandise revenue				$ 103,000.00				$ 103,000.00
food expense		$ 240,000.00				$ 240,000.00
internet expense		$ 54,000.00				$ 54,000.00
electricity expense		$ 65,000.00				$ 65,400.00
telephone expense		$ 20,000.00				$ 20,400.00
interest expense						$ 17,600.00
salary expense		$ 200,000.00				$ 200,900.00
insurance expense		$ 9,000.00				$ 4,900.00
supplies expense		$ 8,000.00				$ 8,000.00
depreciation expense						$ 22,500.00
rent expense		$ 60,000.00				$ 60,000.00
dividend expense						$ 5,000.00
		$ 1,053,500.00		$1,053,500.00		$1,101,389.00		$1,101,389.00
	INCOME STATEMENT
	Income:
	food revenue		$ 469,589.00
	internet revenue		$ 127,000.00
	merchandise revenue		$ 103,000.00		$699,589.00
	Expenses:
	food expense		$ 240,000.00
	internet expense		$ 54,000.00
	electricity expense		$ 65,400.00
	telephone expense		$ 20,400.00
	salary expense		$ 200,900.00
	insurance expense		$ 4,900.00
	supplies expense		$ 8,000.00
	depreciation expense		$ 22,500.00
	rent expense		$ 60,000.00		$676,100.00
	Operating Income				$ 23,489.00
	Interest expense				$ 17,600.00
	Net Income				$ 5,889.00

BALANCE SHEET
ASSETS			LIABILITIES
Current Assets:			Current liabilities:
Cash	$ 35,000.00		Accounts payable		$18,000.00
Accounts receivable	$ 6,689.00		accrued liabilities		$ 1,700.00
Food inventory	$ 21,000.00		interest payable		$17,600.00
Merchandise inventory	$ 62,500.00		dividend payable		$ 5,000.00	$ 42,300.00
Prepaids	$ 7,500.00	$132,689.00	Long term liabilities:
Fixed Assets:			Long term loan			$220,000.00
Computers	$ 30,000.00		Equity:
Less accumulated depn	$ 18,000.00	$ 12,000.00	Common Shares		$50,000.00
Bakery equipment	$ 90,000.00		Retained earnings		$22,889.00	$ 72,889.00
Less accumulated depn	$ 27,000.00	$ 63,000.00
Furniture and fixtures	$150,000.00
Less accumulated depn	$ 22,500.00	$127,500.00
		$335,189.00				$335,189.00

o assess the financial reporting landscape, considering the user needs, constraints, and business environment;

o identify the issues;

o analyze the issues (qualitatively and quantitatively); and

o provide a recommendation for each issue identified in the case.