Case: Tees R Us Tees R Us , set up as a privately held corporation, operating as a t-shirt retailer, of which 100% of the Common Shares are owned by Tamara Green. You were hired to account for transactions for the month of February 2021, complete month endprocessing, prepare the financial statements and perform a financial ratio analysis as of the end of that month. They use perpetual inventory system and use the weigted average method to determine value for the inventory. Its balance sheet as at January 31, 2021, is presented below.Tees R Us Classified Balance Sheet As at January 31 , 2021 Assets Cash $35,600 Accounts Receivable 16 870 Merchandise Inventory 12,500 Prepaid Insurance 4 400 Total Current Assets 69,370 Long-Term Assets Equipment 162,000 Accumulated Depreciation -52,000 110,000 Total Assets 5179,370 Liabilities Current Liabilities Accounts Payable $12,000 Unearned Revenue 59,000 Salaries Payable $5,700 Current Portion of Bank Loan 11.160 Total Current Liabilities $37,860 Non-Current Liabilities Non-Current Portion of Bank Loan 23,840 Total Liabilities $61,700 Shareholders' Equity Common Shares 81,000 Retained Earnings 36,670 Total Shareholders' Equity 117,670 Total Liabilities & Equity 5179,370Notes Relating to Balances. Although we are not using special journals and subsidiary ledgers, we have provided the customer and supplier names and account balances for your reference below: Customers and balances Suppliers and Balances Columbia 53,200 Henley 50 Arrow 56,400 Al $7,500 Dickies 54,250 Fabrica $4 500 Martin 52,100 Total $12,000 Short 5920 Total $16 870 Page 1 The bank loan has an annual interest rate of 5%% and has monthly principal payment of $930. The inventory figure includes 500 units purchased at $25.00 each.The Chart of Accounts (GL no.) is shown below: Account Description Account # Account Description Account # ASSETS REVENUE Cash 101 Sales Revenue 400 Petty Cash 105 Sales Discounts 405 Accounts Receivable 110 Sales Returns and Allowances 410 Merchandise Inventory 120 Interest Revenue 420 Prepaid Insurance 125 Other Income 430 Equipment 140 EXPENSES Accumulated Depreciation 145 Cost of Goods Sold 500 LIABILITIES Employee Benefits Expense 510 Accounts Payable 200 Depreciation Expense 515 Interest Payable 205 Insurance Expense 520 a[gened ddo 220 Interest Expense 525 El Payable 225 Office Supplies Expense 530 Income Tax Payable 230 Rent Expense 535 Salaries Payable 235 Salaries Expense 540 Unearned Revenue 240 Bank Charges Expense 545 245 Maintenance Expense 550 SHAREHOLDERS' EQUITY Entertainment Expense 555 Common Shares 300 Shipping Expense 560 Retained Earnings 305 Cash Over and Short 565Required: a) Prepare the journal entries for the month of February. You will also need to update the inventory in the table for each purchase and sale, return or allowance, found under the Inventory Valuation tab of this workbook. bjEnter the opening balances of the accounts from the opening balance sheet and post the above journal entries c) Complete the bank reconciliation report. d) Record and post journal entries from the bank reconciliation to general ledger accounts e) Complete the 10-column worksheet. e) Post the adjusting entries to the accounts f) Journalize and post the adjustments [) Prepare the multistep income statement, calculation of retained earnings, classified balance sheet h)Answer the analysis questions from 's' to 'i' (found at bottom on Financial Statements tab)Transactions for the month of February: Feb 1 Paid rent for February amounting to 5660, Cheque #3354 Feb 1 Tees R Us decided to establish a petty cash fund for the office. A cheque #3355 of $500 was issued and cashed Purchased merchandise from Henley on account, invoice #425; 1100 units at $28 each. Terms of the Feb 5 purchase were 4/10, net 30, FOB Destination. The seller paid the shipping cost amounting to $55. Note: Update the Inventory Valuation table after each purchase Sold mechandise on accout to Arrow, 800 units at $75 each with invoice #2341. The invoice terms Feb 7 were 3/10, net 30, FOB Destination. Note: Update the Inventory Valuation table after each sale. Some of goods purchased from Henley were defective. Henley agreed to a 5% allowance on the total purchased. Feb 9 Note: You will need to update the Inventory Valuation table to reflect the allowance as it reduces the value of the inventory. Paid total liability with a cheque #3356 to Henley for the February 5 purchased. Feb 12 Note: You will need to update the Merchandise Inventory account to reflect any discount for early payment to supplier. The employees are paid bi-weekly. Paid the payroll for the first half of February, cheque #3357. Feb 15 Gross pay is $12,500, CPP is $638, El is $235 and income tax is $2,500. Use the general journal to record this. Feb 15 Record the employer's share of CPP (100%) and El (140%) of what was deducted from employees. Feb 17 Arrow paid invoice #2341 on time and took advantage of the early payment discount. Bought inventory from Fabrica with cheque #3358, 1400 units at $30 per unit. Note: Update Feb 18 Inventory Valuation table to reflect purchase Sold 600 units on account at $90 each with invoice #2342 to Martin. The invoice term 3/10, net 30, Feb 20 FOB shipping point. Note: Update Inventory Valuation table. Feb 20 Received $3,200 from Columbia for a sale on account last month. The remaining balance of the petty cash account was $150. Total expenses incurred using the pettycash fund this month amounting to $345. In this amount, it includes the shipping cost incurred on Feb 25 Feb 7 in the amount of $55 and the other costs are for the office supplies expense. Prepare the entry to replenish the petty cash fund with Chq#3359 . Made monthly bank loan payment of $1,076 which includes $930 principal and $146 interest. Feb 28 Note: You need to debit the non-current portion of the bank loan for the principal payment. The current portion due will remain the same as the due date for the loan is greater than 12 months from balance sheet date. Prepared the payroll for the second half of February to be paid on March 5. Gross pay is $15,000, Feb 28 CPP is $765, El is $282 and income tax is $3,000. The cheque will be prepared later. Use the general journal to record this. Feb 28 Record the employer's share of CPP (100%) and El (140%) of what was deducted from employees. Complete parts b], c) and d) & e), including adjustments, on the worksheet now. Adjustments: Feb 28 For Prepaid Insurance, record the adjustment of $440 for the current month expense. Feb 28 For Unearned Revenue, $2,700 still remains unearned at the end of February. Feb 28 Monthly depreciation on the equipment was $1,500. Journalize and then post adjustments\fGeneral Journal 3180 Account Title and ExplanationGeneral Journal Page 5 Adjusting Entries 3180 Account Title and ExplanationGeneral Ledger Accounts Account: Cash GL NO: Date Description PR OR CR Balance (DR or CR) Opening Balance Account: Petty Cash GL NO: 105 Date Description PR Balance (DR or CR) Opening Balance 0.00Account: Accounts Receivable GL NO: 110 Date Description PR DR CR Balance (DR or CR) Opening Balance DR Account: Merchandise Inventory GL NO: 120 Date Description PR DR CR Balance (DR or CR) Opening BalanceAccount: Prepaid Insurance GL No: 125 Date Description PR DR CR Balance (DR or CR) Opening Balance Account: Equipment GL NO: 140 Date Description PR DR CR Balance (DR or CR) Opening Balance Account: Accumulated Depreciation GL NO: 145 Date Description PR DR CR Balance (DR or CR) Opening Balance Account: Accounts Payable 200 Date Description Opening Balance\f\f\fAccount: Sales Returns and Allowances GL No: 410 Date Description PR DR CR Balance (DR or CR) Account: Interest Revenue GL No: 420 Date Description PR DR CR Balance (DR or CR) Account: Date Account: 510 Date Description Account: Depreciation Expense 515 Date Description PR DR CR Balance (DR or CR) Account: Insurance Expense GL No: 520 Date Description PR DR CR Balance (DR or CR)\f\f\fYour accountant goes through the mail and opens the bank statement for the month of February provided by Bank of Canada. It is shown below. Bank of Canada Prepared for Tees R Us Date Information Withdrawal Deposit Balance Opening Balance 24,300.00 Feb 1 Paid Chq#3355 500.00 23,800.00 Feb B Deposit 11,300.00 35,100.00 Feb 14 Paid Chq#3356 28,089.60 7,010.40 Feb 15 Paid Chq#3357 9,127.00 -2,116.60 Feb 17 Deposit 58,200.00 56,083.40 Feb 18 Cho#3350 42,000.00 14,083.40 Feb 19 Cho#11140 3,390.00 10,693.40 Feb 25 Cho#3359 350.00 10,343.40 Feb 28 Auto debit loan payment 1,076.00 9,267.40 Feb 28 Service Charge 34.00 9,233.40 Feb 28 Interest 290.00 9,523.40General Ledger Accounts Account: Cash GL NO: 101 3180 Description PR DR CR Balance (DR or CR) Opening Balance 35,600.00 DR Feb 1 Paid Chq#3354 G13 660.00 34 940.00 DR Feb 1 Paid Chq#3355 500.00 34 440.00 DR Feb 12 Paid Cho#3356 28,089.60 6,350.40 DR Feb 15 Paid Chq#3357 G13 9,127.00 2,776.60 CR Feb 17 Received payment G13 58,200.00 55,423.40 DR Feb 18 Paid inventory Cho#3358 G13 42,000.00 13,423.40 DR Feb 20 Received payment 3,200.00 16,623.40 DR Feb 25 Petty Cash Cho#3359 G13 350100 16,273.40 DR Feb 20 Paid loan G13 1,076.00 15,197.40 DR Additional Information: a) The $11,300 is already recorded in the ledger last month. bj cheque number of the company has (4) digits. Required: Prepare the February bank reconciliation for Tees R Us using the bank statement and general ledger provided. Compare the information in the general ledger to the bank statement. Once reconciled, record the relevant journal entries in the general journal and post the entries in the general ledger to bring the company's record up to date.Tees R Us Bank Reconciliation Statement February 28, 2021 Balance per Balance per Explanation books Bank Balance per recordsTees R Us worksheet Unadjusted Trial Balance Account Titles DR Cash Petty Cash Accounts Receivable Merchandise Inventory Prepaid Insurance Equipment Accumulated Depreciatio Accounts Payable CPP Payable El Payable Income Tax Payable Salaries Payable Unearned Revenue Bank Loan Common Shares Retained Earnings Sales Revenue Sales Discounts Interest Revenue Cost of Goods Sold Employee Benefits Expen Depreciation Expense Insurance Expense Interest Expense Office Supplies Expense Rent ExpenseSalaries Expense Bank Charges Expense Shipping Expense Cash Over and Short Total Net IncomeTees R Us Classified Balance Sheet As at January 31 , 2021 Assets Cash 535,600 Accounts Receivable $16,870 Merchandise Inventory $12,500 Prepaid Insurance 54,400 Total Current Assets 69,370 Long-Term Assets Equipment 162,000 Accumulated Depreciation -52,000 110,000 Total Assets $179,370 Liabilities Current Liabilities Accounts Payable $12,000 Unearned Revenue $9,000 Salaries Payable $5,700 Current Portion of Bank Loan $11,160 Total Current Liabilities 537,860 Non-Current Liabilities Non-Current Portion of Bank Loan 23,840 Total Liabilities 561,700 Shareholders' Equity Common Shares 81,000 Retained Earnings 36,670 Total Shareholders' Equity 117,670 Total Liabilities & Equity $179,370 Required: Using the balances of the General Ledger accounts as of Feb. 28, complete the financial statements.1) Prepare a multistep income statement. Tees R US Income Statement For the Month Ended February 28, 2021 Sales Revenue Sales Discounts Net Sales Cost of Goods Sold Gross Profit Operating Expenses Employee Benefits Expense Depreciation Expense Insurance Expense Office Supplies Expense Rent Expense Salaries Expense Bank Charges Expense Shipping Expense Cash Over & Shorrt Total Operating Expenses Operating Income Other Income and Expenses Interest Expense Interest Revenue Total Other Income and Expenses Net Income2) Prepare a calculation of retained earnings Calculation of Retained Earnings For the Month Ended February 28, 2021 Retained Earnings, Beginning Add: Net Income Less: Dividends Retained Earnings, End3) Prepare a classified balance sheet. Assume that $ of the bank loan will be paid off in the 12 months. Tees R Us Balance Sheet As at February 28, 2021 Assets Current Assets Cash Petty Cash Accounts Receivable Merchandise Inventory Prepaid Insurance Total Current Assets Long-Term Assets Equipment Accumulated Depreciation Total Assets liabilities Current Liabilities Accounts Payable CPP Payable El Payable Income Tax Payable Salaries Payable Unearned Revenue Current Portion of Bank Loan Total Current Liabilities Non-Current Liabilities Non-Current Portion of Bank Loan Total Liabilities Shareholders' Equity Common Shares Retained Earnings Total Liabilities & Shareholders' EquityBased on the information above, answer the following questions. a) calculate the current ratio as at February 28, 2021 Current Assets/Current Liabilities bj Does Tees R Us have a good or bad current ratio? Explain why or why not. c) calculate the inventory days on hand ratio as at February 28, 2021. (Since this is for the month, do not multiply by 365 in the formula. Instead multiply by 31 days.} d) Last month, the inventory days on hand ratio was 39 days. Has the ratio improved? Why or why not? e) Calculate the debt to equity ratio as at February 28, 2021.f) Calculate the gross profit margin as at February 28, 2021. Gross Profit/Net Sales [) Last month, the gross profit margin percentage was 70%. What could have caused this decrease in gross margin percentage? Change in product mix. Some products sold could have higher gross profit margin than others Theft of inventory Errors in calculating COGS Perhaps they need to increase sales price to compensate for increase in product costs from suppliers hj Calculate the inventory turnover as at February 28, 2021. i) If inventory turnover last month was 0.81, is the company holding on to inventory for a longer or shorter period of time? They are holding on to inventory for less time as they are turning it over, buying and selling it faster