Prepare the yearend financial statements for December 31, 2010.
"Lesley was part way through preparing the financial statements when she left. I am not sure what was done. I know she said there were several adjustments that still had to be made. Maybe you can find some notes on her desk. I will also email all the other staff to ask them if they were working on anything for Lesley. I really appreciate this and I won't forget it next year when we do our summer hiring." Patty says.
You are sorting through Lesley's desk later that day and find notes about entries that still need to be made to the financial statements. You print off a trial balance for December 2010 that includes December 2009 final balances for comparison. Unfortunately, you could only get the trial balance to print in alphabetical order rather than account number order (see attached).
Patty also brings you a couple of emails from other staff who indicated that they were working on information for Lesley for the yearend financial statements.
Below is a list of the information from the emails received by Patty about possible adjusting entries that need to be made.
Note 1 Sales
On December 30, 2010, Aqua was required to ship 20 inflatable boats to Coastal Boats Ltd at a price of $645 each and FOB shipping point. Unfortunately, the delivery truck experienced mechanical difficulties and the boats were left on the loading dock until January 2, 2011. Coastal provided a $2,800 deposit on December 30. Lesley recorded both the sale and the adjustment to inventory on December 30, 2010. The boats cost $450 each.
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Note 2 Inventory
The amount on hand at the end of 2009 was 1,240 units valued at $514,600 or $415 per unit. The company uses the perpetual method for inventory and the FIFO cost flow assumption to calculate inventory and cost of sales. Purchases during the year are as follows:
May 2010 9,000 units at $440
October 2010 6,200 units at $450
The inventory count at December 31, 2010 showed 1,020 units on hand as all purchases and sales of goods during the year have been recorded. No adjustment has been made to inventory for the inventory count results. You remember from your accounting course that we have to compare the count amount to the general ledger amount and adjust the balance. The inventory related to the sale in Note 1 was not included in the count and SHOULD NOT impact your calculations.
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Note 3 Insurance
The company purchased a one-year insurance policy effective October 1, 2010 for $8,000. When the premium was paid, the full amount was charged to insurance expense.
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Note 4 Equipment
The company depreciates its equipment on a straight-line basis over 8 years. New equipment costing $58,000 was purchased on October 1, 2010. Equipment on hand at the beginning of the year is being depreciated at $86,050 per year.
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Note 5 Salaries and wages payable
Aqua is open seven days a week and employees are paid a total of $19,600 salaries every Monday for the previous seven-day work week (Monday - Sunday). December 31, 2010 is a Friday so employees will have worked five days (Monday -Friday) since their last payday. Employees will be paid next on
January 3, 2011.
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Note 6 Notes payable
The company has two loans outstanding at December 31, 2010.
Loan #1 - $400,000 which was obtained September 1, 2008. The company pays interest once a year on August 31st at the rate of 8% per annum. The company also makes $50,000 principal repayment each August 31 so two principal repayments have been made by December 31, 2010.
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Loan #2 -$50,000 which was obtained on October 1, 2010 to help with the purchase of new equipment. The interest rate on the loan is 5% and is automatically deducted from Aqua's bank account on the last day of each month. Principal repayments are $10,000 annually paid on September 30 starting in 2011. You review the December 2010 bank statement and the general ledger and note that the December, 2010 interest payment has been recorded appropriately.
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Note 7 Prepaid advertising
At the end of 2009, the company had paid $35,000 for an advertising campaign to run Jan through March of 2010. On October 1, 2010, the company purchased another advertising campaign for $98,000 to run from October 1, 2010 to April 30, 2011. This advertising was recorded as selling and marketing expenses.
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Note 8 Utilities expense
The company receives its utilities bill on January 10th for services received in December. The company will pay the bill on January 30. The company has paid an average $970 per month in utilities in the past six months.
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Note 9 Unearned revenue
The balance consists of two items. During November 2010, the company received $5,000 from Company ABC for an order that is to be completed in February 2011. The company also received a deposit of $10,000 from Company DEF for an order that was completed in December 2010.
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Note 10 Bank Reconciliation
The bank reconciliation for December 31 had not yet been prepared when Lesley left. The following information is available:
Bank Reconciliation, November 30:
Balance per Bank, Nov. 30 93,912 Balance per Books, Nov. 30 78,757
Add: Deposit in transit 17,300 Add: EFT 14,300
Less: Outstanding cheques Less:
6001 16,200 NSF Cheque 1,200
6002 3,220 NSF fee 40
19,420 Service charges 25
Adjusted balance per bank 91,792 1,265
Adjusted balance per books 91,792
Aqua Life Ltd.
Bank Statement, Dec. 31
Date Description Withdrawals Deposits Balance
Dec. 1 Balance Forward 93,912.00
Dec. 2 Deposit 17,300.00 111,212.00
Dec. 2 Cheque 6002 3,220.00 107,992.00
Dec. 4 Cheque 6003 42,000.00 65,992.00
Dec. 6 Automatic withdrawal 22,700.00 43,292.00
Dec. 8 Deposit 38,400.00 81,692.00
Dec. 13 Automatic withdrawal 22,700.00 58,992.00
Dec. 14 Deposit 54,200.00 113,192.00
Dec. 15 EFT - Horton Inc. 13,800.00 126,992.00
Dec. 16 NSF - Starlight Ltd. 5,670.00 121,322.00
Service fees - NSF 40.00 121,282.00
Dec. 17 Cheque 6004 4,280.00 117,002.00
Dec. 20 Automatic withdrawal 22,700.00 94,302.00
Dec. 21 Deposit 12,100.00 106,402.00
Dec. 27 Automatic withdrawal 22,700.00 83,702.00
Dec. 31 Service charges 25.00 83,677.00
Cash Receipts Cash Disbursements
Dec. 7 Deposit 38,400 Dec. 4 Cheque 6003 42,000
Dec. 14 Deposit 54,200 Dec. 6 Payment of Salaries 22,700
Dec. 21 Deposit 11,200 Dec. 10 Cheque 6004 4,280
Dec. 30 Deposit 3,600 Dec. 13 Payment of Salaries 22,700
Total Cash Receipts 107,400 Dec. 20 Payment of Salaries 22,700
Dec. 27 Payment of Salaries 22,700
Dec. 28 Cheque 6005 14,900
Total Cash Disbursements 151,980
Additional Information
1. No additional entries to cash had been made beyond the receipts and disbursements identified above.
2. Deposits made on Dec. 7, 14 and 21 were cash receipts on account.
3. The bank has not made any errors.
4. Aqua Life expects to collect on the NSF cheque from Starlight Ltd.
Prepare the bank reconciliation for December 31, 2010 and any necessary journal entries to adjust the bank balance per books.
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Bank Reconciliation (5 marks)
Part 1
Required:
a) Prepare the December 31, 2010 adjusting journal entries and post to the unadjusted trial balance using the trial balance spreadsheet provided. For all your calculations, round to the nearest whole dollar. You may need to add an account; if so, add it in the space provided at the bottom. (33 marks)
b) Prepare the bank reconciliation for December 31, 2010. (5 marks)
c) Calculate the adjusted balance for each account on the trial balance (4 marks)
Use the formatted trial balance with adjustment columns on the last page of the assignment package. A template in excel has been provided.
d) i) Using the adjusted trial balance prepared above, calculate the gross margin for 2010 and 2009. Show your calculations. (2 marks)
ii) Comment on whether the gross margin has improved or worsened since 2009 and what that might indicate for the business. (2 marks)
iii) The industry gross margin is 30%. Comment on whether Aqua Life is performing better or worse than industry and comment on the significance to the business. (2 marks)
Gross Margin Calculations
Comparison to prior year
Comparison to industry
e) Using the adjusted trial balance prepared above, prepare a partial balance sheet, in proper format as at December 31, 2010 showing only the current liabilities section. (7 marks)
Attachment:- ACCT 2121 FALL 2011 ASSIGNMENT 1 -1.zip