In 1967 Gabriel Bisset moved with his wife, Antoinette, from a rural town in France to the growing city of Toronto, Canada. They dreamed about their future in Canada, becoming accustomed to the Canadian lifestyle and culture, and hoped their move would result in more opportunities for their children and grandchildren.
In 1968 Gabriel opened a small bakery on College Street named The Bakers Talent Inc. (TBTI). He specialized in traditional French desserts including tarts, pastries, macarons, and crme brule.
By the 90s TBTI was well-known across the city. Gabriel and Antoinette were grateful for their success as immigrants in Toronto.
It is now March 15, 2021 and Gabriel is nearing retirement. He has taken a step back from the business. His daughter, Estelle, has been heavily involved in TBTI for several years and is going to take over. Estelle does all the accounting and is also a talented baker.
The 2020 December 31 year-end statements need to be finalized.
Exhibit 1 includes an unadjusted trial balance at December 31, 2020.
Exhibit 2 includes information on 2020 transactions which require analysis and recording using Accounting Standards for Private Enterprises (ASPE).
*Round numbers to the nearest whole amount (e.g., round $125.43 to $125). Round ratios/percentages to the nearest whole percent (e.g., round 12.58% to 13%).
Adopt the role of Estelle Bisset and do the following:
1. Prepare the journal entries, with appropriate journal entry descriptions, for 2020, including any required year-end adjusting entries. The company prepares annual adjusting entries.
2. Prepare the Statement of Financial Position, the Statement of Retained Earnings, and the Statement of Earnings for 2020.
Exhibit 1:
Exhibit 2:
Exhibit 1 The Baker's Talent Inc. Unadjusted Trial Balance, December 31, 2020 Credit CAD$ Debit CAD$ 423,177 137,000 5,400 149,000 53,000 25,864 123,000 30,750 4,650 Account name Cash Accounts receivable Prepaid insurance Inventory Machinery Accumulated depreciation - Machinery Furniture and Fixtures Accumulated depre tion - Furniture and Fixtures Computer equipment Accounts payable Dividends payable Contributed capital Retained earnings Revenue Purchases Salaries and wages expense Advertising expense Repairs and maintenance Rent expense Laundry expense Utilities expense Administrative expense 45,000 10,000 75,000 140,386 2,630,000 606,800 1,281,913 16,000 18,370 96,000 18,250 14,440 10,000 $2.957.000 $2,957,000 Exhibit 2 Additional information 1. During the year, TBTI paid parking rental fees via automatic e-transfer from the bank account. The payroll clerk had set up the automatic e-transfer via online banking in early 2020. There were 12 instalments made in the amount of $250 each. The December bank reconciliation reflects the total payment made as a reconciling item on the book side. Bank reconciliations are prepared by Estelle on an annual basis. 2. In the prior year TBTI had paid the entire year's insurance policy upfront which expired as of December 31, 2020. The insurance premium for 2021 is $5,600. TBTI renewed and paid half the 2021 insurance premium on December 21, 2020. 3. The information below relates to capital assets. Ensure you consider item #4 below regarding repairs and maintenance before preparing any capital asset calculations. Special notes Machinery Date of purchase Depreciation method January 1, 2017 Double declining Estimated useful life 10 years January 1, 2018 Bakery fixtures Straight line As of January 1, 2020 Estimated useful life 8 years Estelle believes the Bakery fixtures have a remaining useful life of 5 years Double declining Estimated useful life 5 years May 1, 2020 Computer Equipment 4. The breakdown for repairs and maintenance expense per the trial balance is as follows: (you need to consider if all these items should in fact be classified as repairs and maintenance) Machinery - new part (increases efficiency of machinery) - Jan 1, 2020 Cleaning of kitchen equipment - June 12, 2020 Annual pesticide control Dishwasher draining problem - part time labour to fix - July 3, 2020 Anti-rust spray for machinery - March 15, 2020 Large refrigerator purchased - Jan 1, 2020 Total $5,900 $660 $2,000 $320 $490 9,000 $18,370 5. Inventory is valued using weighted average and a periodic inventory system is maintained. Estelle has already applied weighted average to food inventory after doing a physical count on December 31, 2020 before closing for New Year's Eve. Estelle records inventory at net realizable value on an item-by-item basis for financial reporting. Food inventory Cost $45,000 $72,000 $3,200 Net realizable value $43,000 $68,000 $3,200 Raw ingredients - wet Raw ingredients - dry Finished goods - refrigerated and non-refrigerated desserts ready for sale Total 120,200 114,200 be considered in preparing year-end 6. The following information regarding payroll needs financial statements (ignore payroll taxes): Employee Estelle Bisset Pay rate Annual 108,000 Pay frequency 15th of the month (for prior month) 7. In November 2020 TBTI was approached about catering a 35th birthday. TBTI would prepare individual boxes of French desserts for the host to pick up and deliver to attendees' homes in advance of the Zoom 35th birthday party on May 5, 2021. A formal agreement was signed on November 31, 2020 with a $1,000 deposit paid. The full amount paid was credited to Revenue on November 31, 2020. 8. Estelle has reviewed the Accounts Receivable balance and notes that about 70% relates to corporate receivables from catering events. Normally TBTI collects virtually all of its outstanding receivables. Due to the unusual economic conditions in 2020, Estelle fears this year might be different. Estelle estimates fifteen percent of the non-corporate receivables might not be collectible. Forty percent of the corporate receivables have been outstanding 90 days and ten percent of the corporate receivables have been outstanding for over 120 days. Estelle believes fifteen percent of the over 120 dax corporate receivables might not be collectible and ten percent of over 90 day corporate receivables might not be collectible. 9. TBTI's payroll clerk is a very hard worker who has not taken vacation in 2019 or 2020. In 2020 the payroll clerk worked from home. Employees do not typically report payroll errors, so Estelle does not need to monitor the payroll clerk closely. 10. TBTI pays corporate taxes at 15%. Exhibit 1 The Baker's Talent Inc. Unadjusted Trial Balance, December 31, 2020 Credit CAD$ Debit CAD$ 423,177 137,000 5,400 149,000 53,000 25,864 123,000 30,750 4,650 Account name Cash Accounts receivable Prepaid insurance Inventory Machinery Accumulated depreciation - Machinery Furniture and Fixtures Accumulated depre tion - Furniture and Fixtures Computer equipment Accounts payable Dividends payable Contributed capital Retained earnings Revenue Purchases Salaries and wages expense Advertising expense Repairs and maintenance Rent expense Laundry expense Utilities expense Administrative expense 45,000 10,000 75,000 140,386 2,630,000 606,800 1,281,913 16,000 18,370 96,000 18,250 14,440 10,000 $2.957.000 $2,957,000 Exhibit 2 Additional information 1. During the year, TBTI paid parking rental fees via automatic e-transfer from the bank account. The payroll clerk had set up the automatic e-transfer via online banking in early 2020. There were 12 instalments made in the amount of $250 each. The December bank reconciliation reflects the total payment made as a reconciling item on the book side. Bank reconciliations are prepared by Estelle on an annual basis. 2. In the prior year TBTI had paid the entire year's insurance policy upfront which expired as of December 31, 2020. The insurance premium for 2021 is $5,600. TBTI renewed and paid half the 2021 insurance premium on December 21, 2020. 3. The information below relates to capital assets. Ensure you consider item #4 below regarding repairs and maintenance before preparing any capital asset calculations. Special notes Machinery Date of purchase Depreciation method January 1, 2017 Double declining Estimated useful life 10 years January 1, 2018 Bakery fixtures Straight line As of January 1, 2020 Estimated useful life 8 years Estelle believes the Bakery fixtures have a remaining useful life of 5 years Double declining Estimated useful life 5 years May 1, 2020 Computer Equipment 4. The breakdown for repairs and maintenance expense per the trial balance is as follows: (you need to consider if all these items should in fact be classified as repairs and maintenance) Machinery - new part (increases efficiency of machinery) - Jan 1, 2020 Cleaning of kitchen equipment - June 12, 2020 Annual pesticide control Dishwasher draining problem - part time labour to fix - July 3, 2020 Anti-rust spray for machinery - March 15, 2020 Large refrigerator purchased - Jan 1, 2020 Total $5,900 $660 $2,000 $320 $490 9,000 $18,370 5. Inventory is valued using weighted average and a periodic inventory system is maintained. Estelle has already applied weighted average to food inventory after doing a physical count on December 31, 2020 before closing for New Year's Eve. Estelle records inventory at net realizable value on an item-by-item basis for financial reporting. Food inventory Cost $45,000 $72,000 $3,200 Net realizable value $43,000 $68,000 $3,200 Raw ingredients - wet Raw ingredients - dry Finished goods - refrigerated and non-refrigerated desserts ready for sale Total 120,200 114,200 be considered in preparing year-end 6. The following information regarding payroll needs financial statements (ignore payroll taxes): Employee Estelle Bisset Pay rate Annual 108,000 Pay frequency 15th of the month (for prior month) 7. In November 2020 TBTI was approached about catering a 35th birthday. TBTI would prepare individual boxes of French desserts for the host to pick up and deliver to attendees' homes in advance of the Zoom 35th birthday party on May 5, 2021. A formal agreement was signed on November 31, 2020 with a $1,000 deposit paid. The full amount paid was credited to Revenue on November 31, 2020. 8. Estelle has reviewed the Accounts Receivable balance and notes that about 70% relates to corporate receivables from catering events. Normally TBTI collects virtually all of its outstanding receivables. Due to the unusual economic conditions in 2020, Estelle fears this year might be different. Estelle estimates fifteen percent of the non-corporate receivables might not be collectible. Forty percent of the corporate receivables have been outstanding 90 days and ten percent of the corporate receivables have been outstanding for over 120 days. Estelle believes fifteen percent of the over 120 dax corporate receivables might not be collectible and ten percent of over 90 day corporate receivables might not be collectible. 9. TBTI's payroll clerk is a very hard worker who has not taken vacation in 2019 or 2020. In 2020 the payroll clerk worked from home. Employees do not typically report payroll errors, so Estelle does not need to monitor the payroll clerk closely. 10. TBTI pays corporate taxes at 15%
