Henrietta’s Pine Bakery

Background

You are an analyst for the professional service firm, FINACC LLP. Your firm specializes in providing a wide variety of international 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 you to support on a compilation engagement.

Additional Information

Henrietta 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” remains the most popular item amongst the 150 varieties of bread and pastries. Henrietta runs on 90 square meters (1,000 square feet) of space. It has one entrance into the bakery and doors leading out of highway 60. Henrietta’s 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 for the first month’s rent in advance. All the rental payments are current and up to date. For the last two years, Henrietta has had a reliable accountant to prepare its year-end financial statements and everything has been correct. This year, Henrietta’s accountant retired, and Geoff did the best he could record his own financial information. For the information he was not sure about, he kept all the required supporting documentation. Geoff hired your firm, FINNAC LLP to prepare his financial statements for the year. Geoff supplied you with his unadjusted trial balance and the information in Exhibit 1 to assist you.

Supplementary Information

• The amount currently sitting in prepaid arose due to the insurance policy last year. Geoff did not know how to correct it, so he left it. This year’s insurance policy was purchased on November 1 for $9,000. The policy runs from November 1 to October 31 of each year.

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

• 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.

• Henrietta’s will sometimes book special events with small organizations that can pay after the event has taken place. On December 29th, 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.

• Henrietta’s declared a dividend of $5,000 on December 30th.

• Geoff did not 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

 • The information shows that Henrietta’s owes $400 for a telephone bill and $400 for electricity for December. These amounts have not been recorded yet.

Exhibit 1

Henrietta’s Pine Bakery

Unadjusted Trial Balance

December 31, 2015

Account Name	Debit	Credit
Cash	$35,000
Account Receivable	$5,600
Food Inventory	$21,000
Merchandise Inventory	$62,500
Prepaids	$3,400
Computers	$30,000
Accumulated Amortization – Computers		$12,000
Bakery Equipment	$90,000
Accumulated Amortization – Bakery Equipment		$18,000
Furniture and Fixtures	$150,000
Accumulated Amortization – Furniture and Fixtures		$15,000
Accounts Payable		$18,000
Accrued Liabilities		-
Interest Payable
Dividend Payable		-
Long-term Loan		$220,000
Common Shares		$50,000
Retained Earnings		$22,000
Food Revenue		$468,500
Internet Revenue		$127,000
Merchandise Revenue		$103,000
Food Expense	$240,000
Internet Expense	$54,000
Electricity Expense	$65,000
Telephone Expense	$20,000
Interest Expense	0
Salary Expense	$200,000
Insurance Expense	$9,000
Supplies Expense	$8,000
Depreciation Expense	-
Rent Expense	$60,000
	$1,053,000	$1,053,000

Based on the information you have, prepare the:

• Adjusting Journal Entries
• Statement of Earnings (Income Statement)
• Statement of Financial Position (Balance Sheet)
• Statement of Retained Earnings
• Closing Journal Entries (After you have completed the statements)

Ensure you show all your work and prepare proper journal entries and properly formatted financial statements.

NOTES: Issues are hidden within the case. Read the case facts and identify the critical issues required for discussion and analysis.