MBAC5103 1R

Java Python GROW YOUR OWN

On December 1, Year 1, Jack and Diane Jones formed a social enterprise Grow Your Own. The social enterprise will meet the community need of providing a community garden. When the enterprise is not using the gardening equipment, it will be available to rent by community members. The new social enterprise was able to begin operations immediately by purchasing the assets and taking over the location of Cabot Trail Rentals, an equipment rental company that was going out of business. The newly formed social enterprise uses the following accounts.

Cash	Contributed Capital
Accounts Receivable	Retained Earnings
Prepaid Rent	Dividends
Prepaid Insurance	Rental Fees Earned (Revenue)
Office Supplies	Office Supplies Expense
Rental Equipment	Salaries Expense
Accumulated Depreciation: Rental Equipment	Maintenance Expense
Notes Payable	Utilities Expense
Accounts Payable	Rent Expense
Interest Payable	Depreciation Expense
Salaries Payable	Interest Expense
Dividends Payable	Income Taxes Expense
Unearned Rental Fees (Liability)
Income Taxes Payable

The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31. During December, the corporation entered into the following transactions.

Dec.  1 Issued to Jack and Diane Jones 20,000 shares of capital stock in exchange

for a total of $210,000 cash.

Dec.  1 Purchased for $288,000 all of the equipment formerly owned by Cabot Trail

Rentals. Pai MBAC5103 Assignment 1R d $168,000 cash and issued a 1-year note payable for $120,000. The note, plus all 12 months of accrued interest, are due November 30, Year 2.

Dec.  1 Purchased office supplies on account from Connors Basics, $1,200.

Payment due in 30 days. (Upon pick up Diane exclaimed, “I don’t know   why Jack ordered so many supplies – these will last us several months!”)

Dec.  4 Paid $14,400 to Cape Breton Realty as three months’ advance rent on the

rental yard and office formerly occupied by Cabot Trail Rentals.

Dec.  8 Received $9,600 cash as advance payment on equipment rental from RD

Construction Company.

Dec. 12 Paid salaries for the first two weeks in December, $6,240.

Dec. 15 Excluding the RD Construction Company advance, equipment rental fees

earned during the first 15 days of December amounted to $21,600, of which $14,400 was received in cash.

Dec. 17 Rented a backhoe to Sydney Landscaping at a price of $300 per day, to

be paid when the backhoe is returned. Sydney Landscaping expects to keep the backhoe for about two or three weeks.

Dec. 23 Collected $2,400 of the accounts receivable recorded on December 15.

Dec. 26 Purchased on account from Earth Movers, Inc., $720 in parts needed to

repair a rental tractor. Payment is due in 10 days.

Dec. 26 Paid biweekly salaries, $6,240.

Dec. 27 Paid the account payable to Earth Movers, Inc., $720.

Dec. 28 Declared a dividend of 12 cents per share, payable on January 15, Year 2.

Dec. 29 Purchased a 12-month public liability insurance policy for $11,520. This

policy protects the company against liability for injuries and property

damage caused by its equipment. The policy goes into effect on January 1, Year 2.

Dec. 31 Received a bill from Nova Scotia Power for the month of December, $840.

Payment is due in 30 days.

Dec. 31 Equipment rental fees earned during the second half of December amounted

to $24,000, of which $18,720 was received in cash.

Data for Adjusting Entries

a.   Office supplies on hand at December 31 are estimated at $720.

b.  The annual interest rate on the note payable to Cabot Trail Rentals is 6 percent.

c.   The rental equipment is being depreciated by the straight-line method over aperiod of eight years.

d.  The advance payment of rent on December 1 covered a period of three months.

e.   During December, the company earned $4,440 of the rental fees paid in advance by RD Construction Company on December 8.

f.    Salaries earned by employees since the last payroll date (December 26) amounted to $1,680 at month-end.

g.  As of December 31, six days’ rent on the backhoe rented to Sydney Landscaping on December 26 has been earned.

h.  It is estimated that the company is subject to a combined federal and provincial  income tax rate of 40 percent of income before income taxes. These taxes will be payable in Year 2.

Instructions

a.   Perform. the following steps of the accounting cycle for the month of December using the Excel file “MBAC5103 Assignment 1 Working File” .

1.   Journalize the December transactions. Do not include explanations. Remember to indent credits. (Do not record adjusting entries at this point.)

2.   Post the December transactions to the appropriate ledger accounts (T-Accounts).

3.   Prepare the unadjusted trial balance for the year ended December 31.

4.   Prepare the necessary adjusting entries for December.

5.   Post the December adjusting entries to the appropriate ledger accounts.(Use the same ledger as you did for step 2)

6.   Prepare adjusted trial balance for the year ended December 31. (This trial balance will include your account balances after posting your adjusting entries)

b.   Prepare financial statements in good form. as of December 31. (Do not prepare a statement of cash flows).

c.   Prepare closing entries and post to general ledger accounts.

d.   Prepare an after-closing trial balance as of December 31.

e.   Jack has been reading the statement of cash flows for a competitor in the industry to gain a better understanding of the market. Jack shares the following information with you:

Cash flows from operating activities were $200,000.

Cash flows from investing activities were -$100,000 (negative).

Cash flows from financing were -$50,000 (negative).

Beginning cash balance $50,000.

Ending cash balance $100,000.

Would this competitor be considered healthy or unhealthy? Explain your reasoning in Excel tab “Part e”