This comprehensive case requires you to apply concepts learned throughout Chapters 1 3 You may find it helpful to review these chapters before responding to the case requirements Agata Polanska opened her first Pierogi Factory restaurant in Kitchener, Ontario in 2015 Customers love her authentic Polish pierogi, so Agata has steadily expanded her business to include four restaurants and a central kitchen facility Pierogi Factory Ltd s most recent fiscal year ended on December 31, 2020 Requirements What form of business organization is the Pierogi Factory How do you know Why might have Agata decided to use this form of organization Information regarding Pierogi Factorys assets, liabilities, shareholders equity, sales, expenses, and cash flows for its 2020 fiscal year is given below Accounts payable $41,564 Income tax expense $52,274 Accounts receivable 15,632 Interest and other expense, net 9,225 Accrued liabilities 334,962 Inventories 49,518 Cash flows provided by operating activities 352,520 Long term liabilities 313,586 Cash flows used by financing activities 133,074 Other operating expenses 700,090 Cash flows used in investing activities 159,461 Prepaid expenses 52,438 Cash, beginning of year 43,854 Property and equipment, net 1,071,892 Cash, end of year Retained earnings, beginning of year 495,983 Common shares 10,000 Retained earnings, end of year Cost of goods sold 526,628 Salaries and wages 759,998 Depreciation expense 88,010 Sales 2,275,719 Dividends paid 42,270 Use this information and Excel to prepare a trial balance at December 31, 2020 Use the information from Requirement 2 and Excel to prepare all four of the companys financial statements for 2020 Before proceeding to the next Requirements, you should compare your response to Requirement 2 to the solution and correct any errors you made Did the Pierogi Factory have net income or net loss for its fiscal year 2020 Over what period of time was this amount earned How much in total resources does the Pierogi Factory have to work with at December 31, 2020 How much does the Pierogi Factory owe to creditors at December 31, 2020 How much of the companys assets does Agata have a claim to Pierogi Factory Ltd owns the land on which the kitchen facility is located Its original cost was $250,000 back in 2017 In late December, Agata had the property appraised in anticipation of financing she may seek in the near future The appraiser assessed its market value at around $500,000 Does the propertys increased market value affect anything reported in the companys 2020 financial statements Explain your answer Pierogi Factory sells gift cards to customers When it sells a gift card, it debits Cash and credits Unredeemed Gift Cards, a current liability Why does Pierogi Factory record the initial sale of a Gift Cards as a liability instead of as revenue What is the companys primary source of cash Is this a sign of financial strength or weakness Prepare the companys closing entries for 2020 to get the companys records ready for fiscal 2021 Listed below are some of the transactions that occurred during January 2021 January 1 Received $15,000, cash, from restaurant sales The inventory sold had a cost of $5,000 2 Purchased flour (inventory), $11,000, on account 8 Paid for January advertising in local media, $2,000, cheque 11 Paid employees, $7,500, bank transfers, for the one week pay period ending January 10 12 Borrowed money from bank by signing a six month note payable, $80,000 15 Received and paid the electricity bills for all restaurants, $1,500, cheque 19 Paid $11,000 on account for the purchase of flour on January 2, cheque 20 Sold Pierogi Factory gift cards, $1,000, cash 27 Paid January rent for one of the restaurant locations, $3,500, cheque 30 Agata made the monthly payment on her personal house mortgage, $1,200, cash What would be the journal entry for each of the transactions Assign each journal entry from Requirement 10 a number and post the entry to T accounts in the ledger, using its number as a reference (ignore opening balances) How would each transaction from Requirement 10 affect Pierogi Factorys assets, liabilities, and shareholders equity At each year end, Pierogi Factory makes several adjusting entries so that its assets, liabilities, income and expenses are recorded properly and in the correct time period Here is a partial list of some accounts that require adjusting entries at the end of 2021 PREPAID EXPENSES This current asset includes the cost of napkins, straws, tablecloths, dishes, flatware, and a variety of other supplies needed to stock its restaurants The balance of these prepaid expense items at December 31, 2020, was $13,378 A physical count of these items performed on December 31, 2021, revealed that $12,580 of prepaid expense items were on hand Assume that purchases of napkins, straws, tablecloths, dishes, flatware, and other items during 2021 totalled $63,500 EQUIPMENT DEPRECIATION Pierogi Factory uses a variety of equipment in its restaurants and kitchen At the end of 2020, the companys equipment had a total original cost of $425,000 and accumulated depreciation of $123,500 The fixed asset ledger shows that depreciation on this equipment should be $71,250 for 2021, but it has not yet been recorded Also, early in 2021, the company acquired new equipment for $75,000 The company depreciates its equipment on a straight line basis over five years GIFT CARDS As noted in Requirement 7, Pierogi Factory sells gift cards to its customers As at December 31, 2020, it had $15,629 in outstanding, unredeemed gift cards Assume that during 2021, it sold $37,000 in gift cards As at December 31, 2021, there were $12,619 in unredeemed gift cards outstanding SALARIES AND WAGES PAYABLE The balance of Salaries and Wages Payable at December 31, 2020, was $31,570, which represented salaries and wages earned by Pierogi Factory employees in 2020 that were then paid in January 2021 When Pierogi Factory paid the $31,570 in January 2021, it reduced Salaries and Wages Payable and credited Cash As at December 31, 2021, Pierogi Factory employees had earned salaries and wages of $39,401 that would be paid in early January 2022 Prepare adjusting journal entries at December 31, 2021, to account for the items above If these adjusting journal entries had not been made for 2021, what would have been the impact on Pierogi Factorys operating income

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 17, 2024

This comprehensive case requires you to apply concepts learned throughout Chapters 1-3. You may find it helpful to review these chapters before responding to the

This comprehensive case requires you to apply concepts learned throughout Chapters 1-3. You may find it helpful to review these chapters before responding to the case requirements.

Agata Polanska opened her first Pierogi Factory restaurant in Kitchener, Ontario in 2015. Customers love her authentic Polish pierogi, so Agata has steadily expanded her business to include four restaurants and a central kitchen facility. Pierogi Factory Ltd.s most recent fiscal year ended on December 31, 2020.

Requirements

What form of business organization is the Pierogi Factory? How do you know? Why might have Agata decided to use this form of organization?

Information regarding Pierogi Factorys assets, liabilities, shareholders equity, sales, expenses, and cash flows for its 2020 fiscal year is given below.

Accounts payable ....................	$41,564	Income tax expense ....................	$52,274
Accounts receivable ....................	15,632	Interest and other expense, net ....................	9,225
Accrued liabilities ....................	334,962	Inventories ....................	49,518
Cash flows provided by operating activities ....................	352,520	Long-term liabilities ....................	313,586
Cash flows used by financing activities ....................	133,074	Other operating expenses ....................	700,090
Cash flows used in investing activities ....................	159,461	Prepaid expenses ....................	52,438
Cash, beginning of year ....................	43,854	Property and equipment, net ....................	1,071,892
Cash, end of year ....................	?	Retained earnings, beginning of year ....................	495,983
Common shares ....................	10,000	Retained earnings, end of year ....................	?
Cost of goods sold ....................	526,628	Salaries and wages ....................	759,998
Depreciation expense ....................	88,010	Sales ....................	2,275,719
Dividends paid ....................	42,270

Use this information and Excel to prepare a trial balance at December 31, 2020.

Use the information from Requirement 2 and Excel to prepare all four of the companys financial statements for 2020.

Before proceeding to the next Requirements, you should compare your response to Requirement #2 to the solution and correct any errors you made.

Did the Pierogi Factory have net income or net loss for its fiscal year 2020? Over what period of time was this amount earned?
How much in total resources does the Pierogi Factory have to work with at December 31, 2020? How much does the Pierogi Factory owe to creditors at December 31, 2020? How much of the companys assets does Agata have a claim to?
Pierogi Factory Ltd. owns the land on which the kitchen facility is located. Its original cost was $250,000 back in 2017. In late December, Agata had the property appraised in anticipation of financing she may seek in the near future. The appraiser assessed its market value at around $500,000. Does the propertys increased market value affect anything reported in the companys 2020 financial statements? Explain your answer.
Pierogi Factory sells gift cards to customers. When it sells a gift card, it debits Cash and credits Unredeemed Gift Cards, a current liability. Why does Pierogi Factory record the initial sale of a Gift Cards as a liability instead of as revenue?
What is the companys primary source of cash? Is this a sign of financial strength or weakness?
Prepare the companys closing entries for 2020 to get the companys records ready for fiscal 2021.

Listed below are some of the transactions that occurred during January 2021:

January 1	Received $15,000, cash, from restaurant sales. The inventory sold had a cost of $5,000.
2	Purchased flour (inventory), $11,000, on account.
8	Paid for January advertising in local media, $2,000, cheque.
11	Paid employees, $7,500, bank transfers, for the one-week pay period ending January 10.
12	Borrowed money from bank by signing a six-month note payable, $80,000.
15	Received and paid the electricity bills for all restaurants, $1,500, cheque.
19	Paid $11,000 on account for the purchase of flour on January 2, cheque.
20	Sold Pierogi Factory gift cards, $1,000, cash.
27	Paid January rent for one of the restaurant locations, $3,500, cheque.
30	Agata made the monthly payment on her personal house mortgage, $1,200, cash.

What would be the journal entry for each of the transactions?

Assign each journal entry from Requirement 10 a number and post the entry to T-accounts in the ledger, using its number as a reference (ignore opening balances).
How would each transaction from Requirement 10 affect Pierogi Factorys assets, liabilities, and shareholders equity?
At each year end, Pierogi Factory makes several adjusting entries so that its assets, liabilities, income and expenses are recorded properly and in the correct time period. Here is a partial list of some accounts that require adjusting entries at the end of 2021:
- PREPAID EXPENSES: This current asset includes the cost of napkins, straws, tablecloths, dishes, flatware, and a variety of other supplies needed to stock its restaurants. The balance of these prepaid expense items at December 31, 2020, was $13,378. A physical count of these items performed on December 31, 2021, revealed that $12,580 of prepaid expense items were on hand. Assume that purchases of napkins, straws, tablecloths, dishes, flatware, and other items during 2021 totalled $63,500.
- EQUIPMENT DEPRECIATION: Pierogi Factory uses a variety of equipment in its restaurants and kitchen. At the end of 2020, the companys equipment had a total original cost of $425,000 and accumulated depreciation of $123,500. The fixed asset ledger shows that depreciation on this equipment should be $71,250 for 2021, but it has not yet been recorded. Also, early in 2021, the company acquired new equipment for $75,000. The company depreciates its equipment on a straight-line basis over five years.
- GIFT CARDS: As noted in Requirement 7, Pierogi Factory sells gift cards to its customers. As at December 31, 2020, it had $15,629 in outstanding, unredeemed gift cards. Assume that during 2021, it sold $37,000 in gift cards. As at December 31, 2021, there were $12,619 in unredeemed gift cards outstanding.
- SALARIES AND WAGES PAYABLE: The balance of Salaries and Wages Payable at December 31, 2020, was $31,570, which represented salaries and wages earned by Pierogi Factory employees in 2020 that were then paid in January 2021. When Pierogi Factory paid the $31,570 in January 2021, it reduced Salaries and Wages Payable and credited Cash. As at December 31, 2021, Pierogi Factory employees had earned salaries and wages of $39,401 that would be paid in early January 2022.
Prepare adjusting journal entries at December 31, 2021, to account for the items above.
If these adjusting journal entries had not been made for 2021, what would have been the impact on Pierogi Factorys operating income?