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

Requirments:

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 Factory’s assets, liabilities, shareholder’s 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 company’s 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 company’s 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 property’s increased market value affect anything reported in the company’s 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 company’s primary source of cash? Is this a sign of financial strength or weakness?
Prepare the company’s closing entries for 2020 to get the company’s 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.

January 2 = Purchased flour (inventory), $11,000, on account.

January 8 = Paid for January advertising in local media, $2,000, cheque.

January 11= Paid employees, $7,500, bank transfers, for the one-week pay period ending January 10.

January 12 =Borrowed money from bank by signing a six-month note payable, $80,000.

January 15= Received and paid the electricity bills for all restaurants, $1,500, cheque.

January 19 =Paid $11,000 on account for the purchase of flour on January 2, cheque.

January 20= Sold Pierogi Factory gift cards, $1,000, cash.

January 27 =Paid January rent for one of the restaurant locations, $3,500, cheque.

January 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 Factory’s assets, liabilities, and shareholder’s 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 company’s 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 Factory’s operating income? 

Answer rating: 100% (QA)

Solution The form of business used by Agata Polanska is Sole Proprietorship Sole Propriet... View the full answer