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1 BUS 320 Financial Reporting Green Dog Products Inc. Requirements: Step 1: Footnote 1, Summary of Significant Accounting Policies Step 2: Adjusting and correcting journal entries as of 7-31-12 (the fiscal year end). Note: Enough information is provided to prepare the financial statements and footnotes. Consider whether an item should be adjusted with a journal entry, disclosed in the footnotes, or is general business information that does not need to be disclosed. If the company would have already recorded a transaction during the year do not record it again. (Adjusting entries never involve cash. Cash is a highly liquid asset that the company needs to safeguard so the company does not wait until year end for this account.) Step 3: 12 column spread sheet. (See Blackboard for Excel spreadsheet.) Step 4: Income Statement. (Include Earnings per Share.) Footnote 2. Step 5: Statement of Retained Earnings. Footnote 3. Step 6: Balance Sheet. (Classified statement.) Footnotes 4 and 5. Step 7: Finished Product: All corrected statements, footnotes, worksheet and entries. Assume that you are the level of the senior in-charge external auditor on the current audit of a company has been a client for the past 5 fiscal years. Prior audits have resulted in the issuance of unqualified opinions, after some adjustments agreed to by management have been posted. Green Dog Products Inc. is a San Francisco-based retailer of organic dog food products. These products are sold in the company's own retail outlets and other retailers. The company was founded by Patricia Hopland in 1982 and went public in 1994. The company has a distinguished reputation in its field and is a valued client. The fiscal year end is July 31 and the accounts for the year ended 7-31-12 are unaudited. The company's routine adjusting procedures have been completed. The available information consists of the preliminary adjusted accounts and additional information about the company's accounting policies. Information about the company's accounting policies and unresolved issues: 2 A. Employees are paid every Friday. July 31, 2012, is a Tuesday. Salaries total $10,000 for a five day work week. B. Inventory is accounted for using the last in, first out method. 20,000 cases of Green Dog's peanut butter dog cookies were not included in the physical inventory count because they were on consignment at various pet food retailers. The cases have a cost of $50,000. Total inventory at August 1, 2011 was $450,000. Consignment transactions involve another company having our inventory at their locations but our company retains ownership. The other company tries to sell the inventory for us and when the inventory is sold the other company sends our company the cash. The inventory should be on the books of the company that owns the inventory. C. Included in the Operating Expenses is $120,000 for a one year insurance policy purchased on April 1, 2012. D. Bad Debt Expense is estimated at 2% of credit sales. During 2012, 75% of sales were on credit and the other 25% of sales were for cash. E. Depreciation on the Building is on the straight line basis. During account analysis it was discovered that the bookkeeper forgot to record $40,000 depreciation in 2009. F. Depreciation on the Equipment is on the straight line basis and was correctly recorded by the bookkeeper. G. The Common Stock has a $10 par value and there are no treasury shares. 200,000 shares are authorized. A $30,000 dividend was declared and paid during the year. H. Sales are primarily made on a trade account basis, with no prompt payment discount (such as 2/10, n/30) offered. Ordinarily, inventory items are delivered on an f.o.b. shipping point basis. I. The Company started selling Gift Cards at the beginning of fiscal 2012. The gift cards are stored valued cards that have no expiration dates or service charge fees. The gift cards may be purchased in amounts from $25 to $100 per card and may be redeemed for any product on the Green Dog website. $350,000 gift cards were sold and at year end $180,000 were outstanding (not redeemed yet). J. Green Dog sold all the assets related to its running shoe segment on August 2, 2011. The company no longer has any involvement in this type of business. The Loss on Sale was $400,000. K. The note payable has 5% interest. Only the interest is payable monthly and the principal of $500,000 is due July 31, 2015. L. The income tax rate for all fiscal year ends since 7-31-00 has been 25%. 3 Green Dog Products Inc. Balance Sheet 7-31-12 Cash Accounts Receivable Allowance for Doubtful Accounts Inventory Land Buildings Accumulated Depreciation - Buildings Equipment Accumulated Depreciation - Equipment $ Total Assets $ 2,980,000 Accounts Payable Unearned Gift Card Revenue Income Taxes Payable 5% Notes Payable Common Stock - Par Paid in Capital in Excess of Par - Common Retained Earnings $ Total Liabilities and Stockholders' Equity 190,000 285,000 (15,000) 420,000 500,000 1,500,000 (440,000) 800,000 (260,000) 380,000 350,000 22,000 500,000 600,000 200,000 928,000 $ 2,980,000 4 BUS 320 Financial Reporting Project Green Dog Products Inc. Income Statement For year ended July 31, 2012 Sales Less: Cost of Goods Sold Gross Profit Less Other Expenses: Loss on Sale of Shoe Segment Bad Debt Expense Depreciation Expense - Building Depreciation Expense - Equipment Interest Expense Salary Expense Operating Expenses Income Before Income Tax Income Tax Expense Net Income $7,200,000 4,680,000 2,520,000 $ 400,000 $ 80,000 100,000 60,000 25,000 516,000 839,000 Statement of Retained Earnings Retained Earnings, August 1, 2011 Net Income Less Cash Dividends: Retained Earnings, July 31, 2012 $ 583,000 375,000 958,000 30,000 $ 928,000 2,020,000 500,000 125,000 $ 375,000 FRP 3 Green Dog Products Inc. Cash Accounts Receivable Allow for D A Inventory Land Buildings Acc Dep - Bld Equipment Acc Dep - Equip Trial Balance Debit Credit 190,000 285,000 15,000 420,000 500,000 ### 440,000 800,000 260,000 Accounts Payable Unearned Revenue Inc Tax Payable 5% Notes Payable Common Stock - Par PICEP - CS Retained Earnings 380,000 350,000 22,000 500,000 600,000 200,000 583,000 Sales Cost of Goods Sold Loss on Sale Bad Debt Expense Dep Exp - Bld Dep Exp - Equip Interest Expense Salary Expense Operating Expenses Income Tax Expense ### 400,000 80,000 100,000 60,000 25,000 516,000 839,000 125,000 Dividends ### 67,000 30,000 ### ### 50,000 28,000 4,000 67,000 Retained Earnings Debit Credit 380,000 180,000 89,000 500,000 600,000 200,000 553,000 170,000 30,000 Balance Salary Payable Prepaid Insurance Income Tax Receivable Balance Net Income Balance End Bal. RE Balance Adjustments Adjusted Trial Balance Income Statement Debit Credit Debit Credit Debit Credit 190,000 285,000 28,000 43,000 50000 470,000 500,000 1,500,000 40,000 480,000 800,000 220,000 380,000 180,000 89,000 500,000 600,000 200,000 553,000 7,370,000 ### 400,000 108,000 100,000 60,000 25,000 520,000 80,000 759,000 192,000 Balance Sheet Debit Credit 190,000 285,000 43,000 470,000 500,000 ### 480,000 800,000 220,000 ### ### 400,000 108,000 100,000 60,000 25,000 520,000 759,000 192,000 30,000 30,000 ### 4,000 80,000 10,000 4,000 80,000 10,000 ### 4,000 80,000 10,000 ### ### 576,000 ### ### ### 30,000 ### ### 576,000 ### ### ### ### ### FRP 4 Green dog Products Inc. Income Statement For the year ended July 31, 2012 Sales Less: cost of goods sold Gross profit Less other expenses: Bad debt expense Depreciation expense - building Depreciation expense - equipment Interest expense Salary expense Operating expense Income from continuing operations before tax Income tax expense Income from continuing operations Loss on discontinued segment Loss on sale Net income $7,370,000 (4,630,000) 2,740,000 (108,000) (100,000) (60,000) (25,000) (520,000) (759,000) (1,572,000) 1,168,000 (192,000) 976,000 (400,000) $576,000 Earnings per share Income from continuing operations (976,000/600,00) Loss on sale, net of tax (400,000/600,00) 16.30 (6.70) Net income $9.60