Please answer the following questions:

Problem 1 Adjusting Journal Entries (13 marks, 15 minutes)

You have been asked to review the accounting records of Fine Foods Limited for the year ended December 31, 2020. The unadjusted Trial Balance has been prepared by the companys bookkeeper.

Fine Foods Limited

Unadjusted Trial Balance

As at December 31, 2020

	Debit	Credit
Cash	$ 25,000	$
Accounts receivable	190,000
Inventory	633,000
Prepaid Rent expense	25,000
Equipment	180,000
Accumulated depreciation		21,500
Accounts payable		137,500
Loan payable		120,000
Retained Earnings		478,900
Share capital		300,000
Revenue		574,000
Cost of goods sold	275,000
Bad debt expense	17,000
Salaries expense	135,000
Interest expense	9,900
Rent expense	137,500
Depreciation expense	4,500
Total	$1,631,900	$1,631,900

You have obtained the following addition information:

1. The company provided $125,000 of services to a customer on December 30, 2020. The transaction was recorded in January 2021 when the customer paid the invoice.

2. Effective September 1, 2020, the company signed a 10-month contract for consulting services with its largest customer commencing September 1, 2020. The total amount due under the contract, $24,000, has been received by the company and credited to revenue.

3. The loan payable has been outstanding all year at an annual interest rate of 9%. Interest expense represents interest paid on this loan to November 30, 2020.

4. On January 1, 2020 the company paid its landlord $162,500 in respect of its only rented premises. Monthly rent is $12,500 per month.

5. The Companys only piece of equipment which has a residual value is $15,000 and is being depreciated over a 10-year life.

Problem 1 Adjusting Journal Entries continued

6. The Companys employees have been paid up to and including December 29, 2020. All employees worked on December 30 and 31, 2020 and are therefore owed 4,500 at December 31, 2020.

Required:

Prepare any adjusting journal entries that are required to ensure the Trial Balance is prepared in accordance with GAAP as at December 31, 2020. Explanations are not required but supporting calculations must be shown for full marks.

Problem 2 Financial Statements (15 marks, 15 minutes)

Your friend cannot get the balance sheet of his Company Tasty Brewery Limited to balance! He needs your help. His shareholders are demanding a classified balance sheet.

Your friends attempt

Our financial Position

For the year ended December 31, 2020

Assets

Cash $55,500 Accounts payable $11,000

Building $40,000 Accumulated Depreciation 8,000

Unearned Revenue 12,000 Salary payable 2,500

Prepaid insurance 3,000

Accounts receivable 6,000

Supplies 1,500 Partners' Equity 72,500

Totals $118,000 Totals $94,000

Additional notes:

You have determined that the shareholders incorporated Tasty Brewery Limited with $48,250 in share capital.

50% of the unearned revenue will not be earned until June 2022.

Required:

a) Prepare, in good format, the classified Balance Sheet as at December 31, 2020.

(13 marks)

Part b is on the next page

Problem 2 Financial Statements continued

b) Why do clients prefer a to receive a classified balance sheet? (i.e. how does it help them?) (2 marks)

Question 3 Accounting Concepts & Principles (7 marks, 7 minutes)

a) Briefly explain two reasons why public companies prepare and distribute quarterly and annual financial statements to shareholders. (4 marks)

b) You have had about 5 weeks of accounting. Discuss whether you believe a set of audited financial statements provides an investor with all the information necessary to make an informed financial decision about a Company. (3 marks)