James Liu had loved photography ever since he received his first camera as a gift from...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
James Liu had loved photography ever since he received his first camera as a gift from his grandmother for his fourth birthday. When he was young, he took pictures of everything that interested him, and he stored them in virtual photo albums that he enjoyed looking at. He continually challenged himself to take better and better pictures. At one point, he took 100 pictures of birds of prey and made an entire exhibit of them. He spent so much time taking pictures that soon his nickname became PhotoCrafter. It was a name that he loved. By the time James was in his final year of university, he was asked to take pictures at so many events that he decided to start a business and he began charging for his services. On July 1, 2020, James officially launched his business, which he immediately named PhotoCrafter. He has now graduated and runs PhotoCrafter on a full-time basis. Information about the business is in Exhibit I. It is now the beginning of July 2022, and James would like to know how PhotoCrafter has done during its second fiscal year. He knows that he has been busy, and he knows that he has had fun, but he also wants to know about the financial success of his business so that he can make some important decisions about whether to expand during the upcoming fiscal year. He would also like to know how much he will have to pay in tax, at a rate of 30%. Throughout the year, James withdrew a personal salary of $2,500 per month. James is eager to see the financial results of the year ended June 30, 2022, his second year of business. He has provided you with a trial balance of his accounts as at June 30, 2021 (Exhibit II) and has asked you to prepare journal entries for all transactions, as well as any adjusting or closing entries, for the year ended June 30, 2022. He would also like you to prepare some visualizations from his financial results and financial statements. Please do your very best work so that James will be impressed and will ask you to prepare his financial statements again next year. Required Prepare: (a) all journal entries, including closing entries (b) at least two visualizations to illustrate the company's financial results (c) a statement of income for the year ended June 30, 2022 (d) a statement of financial position as at June 30, 2022 (e) a memo to James discussing key matters that he should consider relating to the items above, including the visualizations you prepared and your estimate how much he will have to pay in tax Operating Expenses James operates PhotoCrafter out of his home and allocates 30% of the total space to his business. He pays rent on the last day of each month for the following month. On January 1, 2022, his rent increased from a total of $1,400 to a total of $1,500 per month. One part-time employee, Karen, helps James during busy periods. Karen earns $16 per hour and was paid cash for 1,400 hours that she worked during fiscal 2022. Prior to year end, she worked an additional 11 hours that had not yet been paid. Karen also receives a 10% commission on sales that she personally makes. During fiscal 2022, Karen was personally responsible for 20% of PhotoCrafter's gross photography sales. (Gross photography sales were $94,500. Commissions are paid on the last day of each fiscal year.) Photography supplies were purchased on account during fiscal 2022 for $1,750. (All accounts payable for operating expenses are paid at the end of the current month. Use a separate journal entry.) At the end of June, $400 of supplies were still on hand that had not yet been used. PhotoCrafter has a telephone service plan that costs $80 every month for telephone service. On January 1, 2020, James had purchased a 12-month insurance policy. When it expired, he paid for another 24 months and received a 10 % discount off the original price. Because this was a highly mobile business, a major expense for James was operating costs for his car. During fiscal 2022, James drove his car 40,000 km. He kept careful records of all costs and determined that the operating expenses for the car totaled $0.15 per kilometer. These costs were paid in cash as incurred. All of the mileage driven was for business purposes. James has a separate vehicle that he uses for personal purposes. On September 15, 2021, James paid $3,600 for 12 months of advertising in a local photography magazine. The ads were scheduled to start on October 1, 2021. Property, Plant, and Equipment On July 1, 2020, James had paid $20,000 for a Smart Car that was specially designed for his business. He expects to use this car for a total of five years and calculates depreciation based on an expected 160,000 total kilometers. When James started PhotoCrafter he already owned $6,000 worth of camera equipment that he contributed for exclusive use by the business. Depreciation for this equipment was calculated on a straight-line basis. On April 28, 2022, James traded this equipment in on some newe equipment offered by a local vendor. Because of the excellent condition of James's equipment, the vendor gave a trade-in allowance of $4,000, which was the fair value of the equipment. The vendor also extended delayed payment terms by having James sign a $9,000, 4%, 12-month note payable. (All accounts payable for operating expenses are paid at the end of the current month. Use a separate journal entry.) Due to possible rapid obsolescence, James decided to use double declining-balance depreciation for the new equipment, which has a useful life of 10 years and an expected residual value of $3,000. As a condition of the note, the vendor requires a copy of James's fiscal 2022 financial statements once they are completed and requires that James not incur any other debt until the note is repaid. An additional requirement is to maintain a current ratio of at least 2:1. PhotoCrafter also has $4,000 worth of computer equipment that is being depreciated on a declining-balance method. For this equipment, there is $300 residual value expected at the end of its useful life. Intangible Assets On July 1, 2020, James had paid $5,000 to register the name PhotoCrafter as a trade name that has an indefinite life. On the same day, he had also paid $8,000 for a five-year patent to protect his unique photography process. On June 30, 2022, the patent had a fair value of $3,000. Photography Revenue Many of PhotoCrafter's customers are university students who pay by cash or credit card for services as they are received. Students who pay cash receive a discount. Students who pay by credit card do not receive a discount. James pays a 2% service fee to the bank for all credit card transactions. For accounting purposes, credit card purchases are treated as cash. James also does work for schools and for businesses. He calls these "corporate" customers and allows them to pay later, with generous credit terms of 3/30, net 60. Corporate customers never pay with credit cards. PhotoCrafter's gross sales for photography services in fiscal 2022 were $94,500. Of these sales, 78% were to corporate customers; 65% of the corporate customers paid within the discount period. For the remaining sales, 25% were in cash. All unearned revenue from fiscal 2021 was earned during July 2021. (No discounts or credit card fees applied to this revenue.) All accounts receivable were collected in the month following the sale, except as noted in Exhibit III. Camera Sales James's customers often commented on his great skill and the wonderful pictures he took. When they asked him his secret, he said it took years of practice and great equipment. He identified a camera he really liked that sold at a retail price of $450, and he began selling them to interested customers. He found that they were particularly popular as Christmas and Valentine's Day gifts. James was able to purchase the camera he liked from CamPro for $325 each if he ordered at least 25 at a time. Otherwise, he paid $350 per camera. Credit terms from CamPro were 2/15, net 60. Shipping was FOB shipping point and was paid by the correct party. The shipping cost was $4 per camera for orders under 40 cameras and a flat rate of $160 on orders of 40 or more. See Exhibit I for a list of camera purchases. Five of the cameras from the November 15 purchase had defective lenses. James had already paid for these cameras before he realized that they were damaged. He called the supplier and arranged to return them and to get a full refund for all of his costs. The supplier also agreed to pay for the shipping cost for returning the cameras. In December 2021, James needed 10 extra cameras for a customer who wanted them for holiday gifts. CamPro was unable to provide them quickly enough, so James had to order them from SnapShots, a supplier in the United States, at a cost of C$400 each. SnapShots did not offer any credit Exhibit 2- Financial Statements Cash Accounts receivable Allowance for doubtful accounts Prepaid rent Prepaid insurance Supplies Inventory Camera equipment Accumulated depreciation-camera equipment Vehicle Accumulated depreciation-vehicle Computer equipment (Note 1) Accumulated depreciation-computer equipment Patent, net (Note 2) Trade name Accounts payable (Note 3) Unearned revenue Wages payable J. Liu, Capital PhotoCrafter Trial Balance June 30, 2021 terms and shipped overnight at a cost of C$10 per camera. Duty of 8% was also charged on gross purchase price. Shipping terms were FOB destination. In March 2022, James ordered five more cameras from SnapShots for the same customer, under the same terms as the previous order. James sold a total of 100 cameras during fiscal 2022 and had 15 in ending inventory at the end of the year. Most of the cameras sold at the regular selling price of $450; however, the customer who wanted the special-order cameras from SnapShots paid $500 for each of them. She had paid for them and had received them prior to the end of fiscal 2022. Periodic inventory with a FIFO cost flow was used for the rest of the cameras. All camera sales were for cash at the time of the sale. Note 1. Acquired on July 1, 2020. Note 2. Includes $1,600 of accumulated amortization. Note 3. All accounts payable relate to inventory purchases. Debit $ 26,200 1,044 420 600 200 7,080 6,000 20,000 4,000 6,400 5,000 $ 76,944 Credit $ 150 1,500 3,750 2,000 7,080 600 300 61,564 $ 76,944 Exhibit 3 - Photography Sales and Collections Corporate Customers August 1, 2021 September 5, 2021 1 2 3 4 5 6 December 12, 2021 February 10, 2022 March 9, 2022 March 9, 2022 Exhibit 4 - Camera Purchases Purchase # # of Cameras 20 45 10 30 5 10 James received a cheque in the mail from a business whose account had been written-off in January 2020. The cheque was for 30% of the $4,000 that had been written-off. The London High School called to complain that some of the pictures James had taken for a school function were not the right type. The school had already paid its bill, so James sent them a $200 refund. Stanley Company declared bankruptcy, and James decided to write off its outstanding balance of $1,700. The Business Company, a corporate customer, called to ask that their $2,000 outstanding account be converted to a note. James agreed to convert the account receivable to a 12%, three-month note receivable. The note was paid in full on May 9, 2022. Sterling Corporation called to ask James if he would be available to take pictures at a family fun day they were planning for August 2022. James agreed to take the pictures and told Sterling the cost would be $1,500. Sterling gave James a deposit of $500 and will pay the balance when the services are performed. This $500 was not included in the gross sales figure for the year. At the end of the fiscal year, the balance in Accounts Receivable was $3,150. James believes that 4% of outstanding accounts receivable at the end of the year will not be collectible. Date Shipped June 20, 2021 November 15, 2021 December 10, 2021 February 1, 2022 March 28, 2022 June 25, 2022 Date Delivered July 2, 2021 November 28, 2021 December 12, 2021 February 12, 2022 March 30, 2022 July 5, 2022 Date Paid July 10, 2021 November 29, 2021 December 15, 2021 February 20, 2022 April 1, 2022 July 6, 2022 James Liu had loved photography ever since he received his first camera as a gift from his grandmother for his fourth birthday. When he was young, he took pictures of everything that interested him, and he stored them in virtual photo albums that he enjoyed looking at. He continually challenged himself to take better and better pictures. At one point, he took 100 pictures of birds of prey and made an entire exhibit of them. He spent so much time taking pictures that soon his nickname became PhotoCrafter. It was a name that he loved. By the time James was in his final year of university, he was asked to take pictures at so many events that he decided to start a business and he began charging for his services. On July 1, 2020, James officially launched his business, which he immediately named PhotoCrafter. He has now graduated and runs PhotoCrafter on a full-time basis. Information about the business is in Exhibit I. It is now the beginning of July 2022, and James would like to know how PhotoCrafter has done during its second fiscal year. He knows that he has been busy, and he knows that he has had fun, but he also wants to know about the financial success of his business so that he can make some important decisions about whether to expand during the upcoming fiscal year. He would also like to know how much he will have to pay in tax, at a rate of 30%. Throughout the year, James withdrew a personal salary of $2,500 per month. James is eager to see the financial results of the year ended June 30, 2022, his second year of business. He has provided you with a trial balance of his accounts as at June 30, 2021 (Exhibit II) and has asked you to prepare journal entries for all transactions, as well as any adjusting or closing entries, for the year ended June 30, 2022. He would also like you to prepare some visualizations from his financial results and financial statements. Please do your very best work so that James will be impressed and will ask you to prepare his financial statements again next year. Required Prepare: (a) all journal entries, including closing entries (b) at least two visualizations to illustrate the company's financial results (c) a statement of income for the year ended June 30, 2022 (d) a statement of financial position as at June 30, 2022 (e) a memo to James discussing key matters that he should consider relating to the items above, including the visualizations you prepared and your estimate how much he will have to pay in tax Operating Expenses James operates PhotoCrafter out of his home and allocates 30% of the total space to his business. He pays rent on the last day of each month for the following month. On January 1, 2022, his rent increased from a total of $1,400 to a total of $1,500 per month. One part-time employee, Karen, helps James during busy periods. Karen earns $16 per hour and was paid cash for 1,400 hours that she worked during fiscal 2022. Prior to year end, she worked an additional 11 hours that had not yet been paid. Karen also receives a 10% commission on sales that she personally makes. During fiscal 2022, Karen was personally responsible for 20% of PhotoCrafter's gross photography sales. (Gross photography sales were $94,500. Commissions are paid on the last day of each fiscal year.) Photography supplies were purchased on account during fiscal 2022 for $1,750. (All accounts payable for operating expenses are paid at the end of the current month. Use a separate journal entry.) At the end of June, $400 of supplies were still on hand that had not yet been used. PhotoCrafter has a telephone service plan that costs $80 every month for telephone service. On January 1, 2020, James had purchased a 12-month insurance policy. When it expired, he paid for another 24 months and received a 10 % discount off the original price. Because this was a highly mobile business, a major expense for James was operating costs for his car. During fiscal 2022, James drove his car 40,000 km. He kept careful records of all costs and determined that the operating expenses for the car totaled $0.15 per kilometer. These costs were paid in cash as incurred. All of the mileage driven was for business purposes. James has a separate vehicle that he uses for personal purposes. On September 15, 2021, James paid $3,600 for 12 months of advertising in a local photography magazine. The ads were scheduled to start on October 1, 2021. Property, Plant, and Equipment On July 1, 2020, James had paid $20,000 for a Smart Car that was specially designed for his business. He expects to use this car for a total of five years and calculates depreciation based on an expected 160,000 total kilometers. When James started PhotoCrafter he already owned $6,000 worth of camera equipment that he contributed for exclusive use by the business. Depreciation for this equipment was calculated on a straight-line basis. On April 28, 2022, James traded this equipment in on some newe equipment offered by a local vendor. Because of the excellent condition of James's equipment, the vendor gave a trade-in allowance of $4,000, which was the fair value of the equipment. The vendor also extended delayed payment terms by having James sign a $9,000, 4%, 12-month note payable. (All accounts payable for operating expenses are paid at the end of the current month. Use a separate journal entry.) Due to possible rapid obsolescence, James decided to use double declining-balance depreciation for the new equipment, which has a useful life of 10 years and an expected residual value of $3,000. As a condition of the note, the vendor requires a copy of James's fiscal 2022 financial statements once they are completed and requires that James not incur any other debt until the note is repaid. An additional requirement is to maintain a current ratio of at least 2:1. PhotoCrafter also has $4,000 worth of computer equipment that is being depreciated on a declining-balance method. For this equipment, there is $300 residual value expected at the end of its useful life. Intangible Assets On July 1, 2020, James had paid $5,000 to register the name PhotoCrafter as a trade name that has an indefinite life. On the same day, he had also paid $8,000 for a five-year patent to protect his unique photography process. On June 30, 2022, the patent had a fair value of $3,000. Photography Revenue Many of PhotoCrafter's customers are university students who pay by cash or credit card for services as they are received. Students who pay cash receive a discount. Students who pay by credit card do not receive a discount. James pays a 2% service fee to the bank for all credit card transactions. For accounting purposes, credit card purchases are treated as cash. James also does work for schools and for businesses. He calls these "corporate" customers and allows them to pay later, with generous credit terms of 3/30, net 60. Corporate customers never pay with credit cards. PhotoCrafter's gross sales for photography services in fiscal 2022 were $94,500. Of these sales, 78% were to corporate customers; 65% of the corporate customers paid within the discount period. For the remaining sales, 25% were in cash. All unearned revenue from fiscal 2021 was earned during July 2021. (No discounts or credit card fees applied to this revenue.) All accounts receivable were collected in the month following the sale, except as noted in Exhibit III. Camera Sales James's customers often commented on his great skill and the wonderful pictures he took. When they asked him his secret, he said it took years of practice and great equipment. He identified a camera he really liked that sold at a retail price of $450, and he began selling them to interested customers. He found that they were particularly popular as Christmas and Valentine's Day gifts. James was able to purchase the camera he liked from CamPro for $325 each if he ordered at least 25 at a time. Otherwise, he paid $350 per camera. Credit terms from CamPro were 2/15, net 60. Shipping was FOB shipping point and was paid by the correct party. The shipping cost was $4 per camera for orders under 40 cameras and a flat rate of $160 on orders of 40 or more. See Exhibit I for a list of camera purchases. Five of the cameras from the November 15 purchase had defective lenses. James had already paid for these cameras before he realized that they were damaged. He called the supplier and arranged to return them and to get a full refund for all of his costs. The supplier also agreed to pay for the shipping cost for returning the cameras. In December 2021, James needed 10 extra cameras for a customer who wanted them for holiday gifts. CamPro was unable to provide them quickly enough, so James had to order them from SnapShots, a supplier in the United States, at a cost of C$400 each. SnapShots did not offer any credit Exhibit 2- Financial Statements Cash Accounts receivable Allowance for doubtful accounts Prepaid rent Prepaid insurance Supplies Inventory Camera equipment Accumulated depreciation-camera equipment Vehicle Accumulated depreciation-vehicle Computer equipment (Note 1) Accumulated depreciation-computer equipment Patent, net (Note 2) Trade name Accounts payable (Note 3) Unearned revenue Wages payable J. Liu, Capital PhotoCrafter Trial Balance June 30, 2021 terms and shipped overnight at a cost of C$10 per camera. Duty of 8% was also charged on gross purchase price. Shipping terms were FOB destination. In March 2022, James ordered five more cameras from SnapShots for the same customer, under the same terms as the previous order. James sold a total of 100 cameras during fiscal 2022 and had 15 in ending inventory at the end of the year. Most of the cameras sold at the regular selling price of $450; however, the customer who wanted the special-order cameras from SnapShots paid $500 for each of them. She had paid for them and had received them prior to the end of fiscal 2022. Periodic inventory with a FIFO cost flow was used for the rest of the cameras. All camera sales were for cash at the time of the sale. Note 1. Acquired on July 1, 2020. Note 2. Includes $1,600 of accumulated amortization. Note 3. All accounts payable relate to inventory purchases. Debit $ 26,200 1,044 420 600 200 7,080 6,000 20,000 4,000 6,400 5,000 $ 76,944 Credit $ 150 1,500 3,750 2,000 7,080 600 300 61,564 $ 76,944 Exhibit 3 - Photography Sales and Collections Corporate Customers August 1, 2021 September 5, 2021 1 2 3 4 5 6 December 12, 2021 February 10, 2022 March 9, 2022 March 9, 2022 Exhibit 4 - Camera Purchases Purchase # # of Cameras 20 45 10 30 5 10 James received a cheque in the mail from a business whose account had been written-off in January 2020. The cheque was for 30% of the $4,000 that had been written-off. The London High School called to complain that some of the pictures James had taken for a school function were not the right type. The school had already paid its bill, so James sent them a $200 refund. Stanley Company declared bankruptcy, and James decided to write off its outstanding balance of $1,700. The Business Company, a corporate customer, called to ask that their $2,000 outstanding account be converted to a note. James agreed to convert the account receivable to a 12%, three-month note receivable. The note was paid in full on May 9, 2022. Sterling Corporation called to ask James if he would be available to take pictures at a family fun day they were planning for August 2022. James agreed to take the pictures and told Sterling the cost would be $1,500. Sterling gave James a deposit of $500 and will pay the balance when the services are performed. This $500 was not included in the gross sales figure for the year. At the end of the fiscal year, the balance in Accounts Receivable was $3,150. James believes that 4% of outstanding accounts receivable at the end of the year will not be collectible. Date Shipped June 20, 2021 November 15, 2021 December 10, 2021 February 1, 2022 March 28, 2022 June 25, 2022 Date Delivered July 2, 2021 November 28, 2021 December 12, 2021 February 12, 2022 March 30, 2022 July 5, 2022 Date Paid July 10, 2021 November 29, 2021 December 15, 2021 February 20, 2022 April 1, 2022 July 6, 2022
Expert Answer:
Answer rating: 100% (QA)
Based on the information you provided here are some of the key matters that James should consider relating to the items above including the visualizations you prepared and your estimate of how much he ... View the full answer
Related Book For
South-Western Federal Taxation 2018 Comprehensive
ISBN: 9781337386005
41st Edition
Authors: David M. Maloney, William H. Hoffman, Jr., William A. Raabe, James C. Young
Posted Date:
Students also viewed these mathematics questions
-
An exempt hospital receives as a gift from a wealthy donor all of the shares of stock of Compute, Inc., a retail computer chain. Because the chain is very profitable and its CEO has offered to...
-
A college dean would like to know how well he can predict sophomore grade point average for first semester freshmen so that students who are headed for trouble can be given appropriate counseling....
-
A biologist would like to know how the age of the mother affects the incidence rate of Down syndrome.The data to the right represent the age of the mother and the incidence rate of Down syndrome per...
-
A car manufacturer designs a fuel-efficient car for 1993. The company argues that the car can attain an average of 45 miles per gallon. The miles per gallon of the car follows a normal distribution...
-
Determine Ronas gross income from the following items she receives during the current year: Interest on savings account ....... $ 300 Dividends on Microsoft stock ........ 200 Interest on Guam...
-
Suppose that the following table shows the quantity supplied of UGG boots at five different prices in 2016 and 2017: ___________________________ Quantity Supplied _____________________ (Thousands of...
-
What is the free-rider problem? Why does it discourage innovation in environmental protection and the adoption of high environmental standards? Can anything be done to overcome the free-rider problem?
-
A major focus of the trial in this case was BDO Seidmans consideration of, and response to, the red flags apparent during the 1995 HMI audit. Define or describe the phrase red flags. Explain the...
-
During Year 1, Ashkar Company ordered a machine on January 1 at an invoice price of $28,000. On the date of delivery, January 2, the company paid $9,000 on the machine, with the balance on credit at...
-
An engineer has a DAQ with a 14-bit A/D converter and a voltage range of 0 to 10 V. They are measuring vibrations around 20 Hz, so they sample at f= 100 Hz to avoid aliasing. They add a DC offset of...
-
2 Find the inverse of the function. 3 f(x) = -4x-2 Show your work here Hint: To add the nth root symbol (VO), type "root" 1(x) = TH
-
For a second order measurement system with a damping factor 0.42, the natural frequency of oscillation is 25 Hz. Determine the dynamic error and time lag at frequency input of 10 Hz. Also find these...
-
The following data for the month of September were taken form the cost records of Department 1 of Pro-Life products which uses process costing system: Opening inventory of work in process: Units -...
-
a) Calculate the Yield to Call (YTC) of a 20-year semiannual coupon-ed par bond with a coupon rate of 9% and a face value of $1000. This bond was n YTC PV PMT FV b) Why can the YTM of this bond be...
-
Select 2 to 3 recruitment methods, decide the following for each, and present the material in a Microsoft Word table: Pros and cons Legal/employment law considerations HR analytics: forecasting tool...
-
A mass of 5 kg hangs from a spring and makes damped oscillations. If the time of 50 complete oscillations is found to be 20 s, and the ratio of the first downward displacement to the sixth is found...
-
1. BBB Ltd., issued a 20 year zero coupon bond on 1 July 2016. It is now 1 July 2020. The current yield to maturity for the bond is 5% p.a. a. What is the price per $100 for this bond today? (2...
-
2. Assume a person bends forward to lift a load "with his back" as shown in Figure P12.42a. The person's spine piv- ots mainly at the fifth lumbar vertebra, with the principal supporting force...
-
Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $410,000 on May 20, 2017. Lori expects the taxable income derived from her business (without regard to...
-
William and Abigail, who live in San Francisco, have been experiencing problems with their marriage. They have a 3-year-old daughter, April, who stays with William's parents during the day because...
-
On January 2 of the current year, Fenton and Myers form the FM LLC. Their contributions to the LLC are as follows: Within 30 days of formation, FM collects the receivables and sells the inventory for...
-
Name eight documents or records that would be examined in the review of subsequent events. For what period would the review be conducted?
-
List eleven matters that would be discussed with management in connection with the audit of subsequent events.
-
What are the purposes of management representations?
Study smarter with the SolutionInn App