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how are you ? I have an assignment i want you to do .. can you check it out for me Assignment #2 - Winter 2015.docx

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Jim Tomato is a recent university graduate and budding entrepreneur. Jim thinks that hot, fresh, and pizza available all day long on university campuses is a guaranteed way to make money. Jim had been considering this idea for a couple of years and recently he finalized what he thinks is the pizza recipe. His friends think the pizza is the best they ever tasted. Jim wants to test his business idea so he decides to incorporate a company called Electric Tomato, Inc. (Electric) and arranges to set up a shop in the food court on the university campus. It’s now December 27, 2016 and Electric has closed for the winter break. Jim has been working almost continuously since Electric opened its doors. He’s had no time to keep any accounting records and he’s asked you to “pull things together” for him. After summarizing the data Jim provided, you have the following information for 2016: i. July 4: Jim incorporates Electric and contributes $20,000 in cash in exchange for Electric shares. ii. August 1: Signs a two-year lease with the university for a small space in the food court. Monthly rent is $1,000. In addition, Electric must pay 2 percent of sales in additional rent at the end of the year. No rent is required for August. Electric writes a cheque for $3,000 for rent for September through November. iii. August 4: Purchases a pizza oven, refrigerator, display cases, cash register, and other required items from a distributor for $22,000. Pays $12,000 in cash and agrees to pay the remainder on February 15, 2017. Jim estimates that all the equipment will have a useful life of five years. Electric begins using the equipment on September 1. iv. August 10: Electric arranged a $20,000 loan from Paul Pepperoni, a rich investor who likes to invest in new small businesses. The interest rate on the loan is 9 percent, payable on December 31 of each year. $10,000 of the loan must be repaid on August 1, 2017 and the remainder on August 1, 2018. v. During August: Renovates and repairs the shop. A contractor is paid $7,000 in cash. vi. October 1: Electric purchases a one-year insurance policy for $1,600. vii. December 1: Electric writes a $3,000 cheque to the university for rent for December through February. viii. December 18: Caters a holiday party for one of the faculties. Bills the faculty $300 and expects to be paid in early January. ix. During 2016: Purchases ingredients for pizza, drinks, etc. for $18,000. On December 27, there is inventory on hand that cost $800. x. During 2016: Sells pizza and drinks to customers for $42,000. All sales were for cash. xi. During 2016: Pays employees $11,200. As of the end of December, employees are owed $500. xii. During 2016: Pays utilities of $1,200. Utilities are paid in full to the end of December. xiii. During 2016: Electric incurred other expenses amounting to $9,500. All were paid in cash. xiv. During 2016: Jim took $5,000 to meet his personal needs. Required a. Prepare all necessary journal entries until December 31, 2016. Provide an explanation for each journal entry. b. Prepare T-accounts and post each journal entry to the appropriate T-accounts. c. Prepare and post adjusting journal entries to their appropriate T-accounts. Adjusting entries are needed for the equipment, insurance, rent, and interest. d. Prepare a trial balance as of December 31, 2016. e. Prepare a balance sheet as of December 31, 2016 and an income statement for the period ended December 31, 2016. Prepare the closing journal entry and post the closing entry to the appropriate T-accounts. f. Prepare a trial balance as of December 31, 2016, after the closing entry has been prepared. g. Compare Electric’s net income with the amount of cash that was generated by the business. Which is a better indicator of how Electric did? Why are they different? (When looking at the cash flow, consider the cash flows after the owners made their initial $20,000 investment.) h. If Jim asked you to evaluate Electric’s financial situation using the financial statements, what would you be able to tell him?
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