Question
Run For Your Life, Inc. is a wholesaler of high-end running gear. The founders, Zoey Smith and Brooke Johnson, have done their research with regards
Run For Your Life, Inc. is a wholesaler of high-end running gear. The founders, Zoey Smith and Brooke Johnson, have done their research with regards to product development, marketing, customers, and brand recognition, however, they did not keep valid accounting records. Now, one year later, the founders realize that they need to prepare some financial statements to understand how the business performed. You have run a few races with Zoey and Brooke in the past and have developed a friendship. You have decided to help them develop their financial statements.
Start-Up Funding:
On the date of incorporation, each founder invested $25,000, for 250 shares of common stock each. In addition they borrowed $175,000 from Obelisk Bank and Trust with interest terms of 2.5% payable annually, and principal due in full at the end of eight years. Incorporation costs (legal fees, etc.) amounted to $1,200.
Expenses and Purchases:
Based on the stack of receipts the founders maintained and their bank statements, Run For Your Life had the following cash disbursements during the year.
Rent (Office and Warehouse) | 8,000 |
Security Deposit (Office and Warehouse) | 1,000 |
Wages and salaries | 11,000 |
Furniture, fixtures and equipment | 15,000 |
IT hardware and software | 13,000 |
Utilities, phone, internet | 5,000 |
Office supplies | 1,200 |
Insurance | 4,200 |
Advertising | 3,000 |
Additional notes for expenses and purchases:
The office and warehouse space was leased on 1/1/2020 and a full year of rent expense and the security deposit were paid for on 1/1/2020.
The furniture, fixtures and equipment are expected to last for 6 years with no salvage value. The IT hardware and software is expected to last for 4 years and they hope to sell it for $1,000.
Insurance premiums are due every 6 months. Run For Your Life paid insurance premiums on 1/1/2020, 7/1/2020 and 12/31/2020 (to prepay insurance premiums for the first 6 months of 2021). There were no insurance premium increases.
Inventory:
The company made the following purchases of inventory in 2020:
Date | Item # | Item Description | Cost | Price | Quantity |
1/1/2020 | 1310 | Motion Control Shoes | $95.00 | $150.00 | 80 |
2/1/2020 | 1311 | Stability Shoes | $105.00 | $175.00 | 60 |
3/15/2020 | 1312 | Cushioning Shoes | $105.00 | $210.00 | 50 |
7/15/2020 | 1313 | Wool Socks | $15.00 | $24.00 | 100 |
8/12/2020 | 1314 | Compression Socks | $25.00 | $41.00 | 75 |
10/1/2020 | 1315 | Foam Roller | $20.00 | $35.00 | 20 |
12/15/2020 | 1316 | GPS Tracker (Smart Watch) | $185.00 | $250.00 | 90 |
Run For Your Life purchased all inventory on credit. At 12/31/2020, all purchases had been paid except for the GPS Trackers (Item #1316) purchased on 12/15/2020.
Sales:
Sales records needed to be rebuilt as the founders did not document these transactions and even lost some of their records. Based on the inventory left at year-end, below is what is assumed to have been sold during the year.
Item # | Item Description | Quantity Sold |
1310 | Motion Control Shoes | 70 |
1311 | Stability Shoes | 45 |
1312 | Cushioning Shoes | 35 |
1313 | Wool Socks | 80 |
1314 | Compression Socks | 70 |
1315 | Foam Roller | 10 |
1316 | GPS Tracker (Smart Watch) | 85 |
Bank records indicate, however, that payment has been received for all purchases except for 30 of the GPS Trackers and 5 of the Foam Rollers which were sold during the last week of the year.
General Ledger:
The founders of Run For Your Life had a CPA help them develop their general ledger back in 2019 when the company was just a concept. The owners understand the purposes of these accounts and would like for you to use these accounts only as you create their manual AIS system.
Account Number | Account Description |
10000 | Cash |
11200 | Accounts receivable |
11300 | Inventory |
11400 | Security deposits |
11500 | Prepaid insurance |
15000 | Furniture, fixtures, and equipment |
15500 | IT hardware and software |
16000 | Accumulated depreciation FF&E |
16500 | Accumulated depreciation IT H&S |
20000 | Accounts payable |
25000 | Loan payable |
30000 | Common stock |
40000 | Revenue |
50000 | Cost of goods sold |
60000 | Legal expense |
60100 | Rent expense |
60200 | Utilities, phone, internet expense |
60300 | Office supplies expense |
60400 | Insurance expense |
60500 | Advertising expense |
60600 | Wages and salaries expense |
65000 | Depreciation expense FF&E |
65500 | Depreciation expense IT H&S |
70000 | Interest expense |
complete the accounting cycle for this company since inception through year-end (2020). This includes:
- Journal entries and adjusting journal entries
- T-accounts
- Trial Balance
- Complete set of Financial Statements (Income Statement, Balance Sheet,)
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