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Stafford has developed plans to expand into the wholesale flower market and is in the process of negotiating a bank loan to finance the expansion. The bank is requesting 2021 financial statements prepared on the accrual basis of accounting from Stafford. During the course of a review engagement of Stafford, your firm, obtained the following information: 1. Amounts due from customers totaled $171,000 at 12/31/2021. During the year the company wrote off $7,400 of receivables that were deemed to be uncollectible. An analysis of the receivables revealed that specific accounts totaling $12,400 were deemed to be uncollectible and an estimated 3% of the remaining accounts receivable balance will probably not be collected in 2022. There were no uncollectable receivables estimated at 12/31/2020. 2. On May 1, 2021, Stafford paid $14,400 to renew its comprehensive insurance coverage for one year. The premium on the previous one-year policy, which expired on April 30, 2021, was $13,200. No adjustment was made in the prior year, Stafford had never heard of a prepaid. 3. Stafford is being sued for $100,000. Stafford's attorney believes that an unfavorable outcome is probable and that a reasonable settlement is $65,000. 4. All employees are paid weekly on Friday. The average payroll is $3,300 (6-day work week) per week. Employees were last paid on Friday, December 31, 2021 for the week ended December 25. Although the employees did not work on Christmas Day, Stafford pays them for the day. Stafford has made estimated tax payments of $10,000 per quarter for the first three quarters of 2021. Stafford's estimated tax rate is 21%. 5. 6. Stafford took out a 2 year note payable on April 1, 2021. The note bears interest at 4%. Principal and interest are due at maturity. 7. The company depreciates their Furniture & Fixtures over a useful life of 10 years using the straight-line method, with no salvage value. Heading 8. The investments account is comprised of two investments. One $100,000 bond was purchased at face value and Stafford's intends to hold until it matures. The interest on these bonds are 3% and is paid annually on January 31. Stafford purchased these bonds on September 1" of the current year. The fair value of these bonds are $102,000. The other investment are shares of Google stock, which were purchased on 4/3/21 for $2,410/share. The closing price of Google on 12/31/21, was $2,894/share. Required: a. Using the information provided, prepare a 10-column worksheet for Stafford Flowers for the year ended December 31, 2021. b. Prepare a separate worksheet showing your adjusting entries in good form. c. Prepare accrual basis financial statements for 2021 to be presented to the bank. You should include a multiple step income statement, statement of retained earnings and a classified balance sheet. A statement of cash flow is not required. Your final product should be of professional quality and worth the $9,800 engagement fee Stafford's is paying your firm for the 2021 review of their financials. Stafford has developed plans to expand into the wholesale flower market and is in the process of negotiating a bank loan to finance the expansion. The bank is requesting 2021 financial statements prepared on the accrual basis of accounting from Stafford. During the course of a review engagement of Stafford, your firm, obtained the following information: 1. Amounts due from customers totaled $171,000 at 12/31/2021. During the year the company wrote off $7,400 of receivables that were deemed to be uncollectible. An analysis of the receivables revealed that specific accounts totaling $12,400 were deemed to be uncollectible and an estimated 3% of the remaining accounts receivable balance will probably not be collected in 2022. There were no uncollectable receivables estimated at 12/31/2020. 2. On May 1, 2021, Stafford paid $14,400 to renew its comprehensive insurance coverage for one year. The premium on the previous one-year policy, which expired on April 30, 2021, was $13,200. No adjustment was made in the prior year, Stafford had never heard of a prepaid. 3. Stafford is being sued for $100,000. Stafford's attorney believes that an unfavorable outcome is probable and that a reasonable settlement is $65,000. 4. All employees are paid weekly on Friday. The average payroll is $3,300 (6-day work week) per week. Employees were last paid on Friday, December 31, 2021 for the week ended December 25. Although the employees did not work on Christmas Day, Stafford pays them for the day. Stafford has made estimated tax payments of $10,000 per quarter for the first three quarters of 2021. Stafford's estimated tax rate is 21%. 5. 6. Stafford took out a 2 year note payable on April 1, 2021. The note bears interest at 4%. Principal and interest are due at maturity. 7. The company depreciates their Furniture & Fixtures over a useful life of 10 years using the straight-line method, with no salvage value. Heading 8. The investments account is comprised of two investments. One $100,000 bond was purchased at face value and Stafford's intends to hold until it matures. The interest on these bonds are 3% and is paid annually on January 31. Stafford purchased these bonds on September 1" of the current year. The fair value of these bonds are $102,000. The other investment are shares of Google stock, which were purchased on 4/3/21 for $2,410/share. The closing price of Google on 12/31/21, was $2,894/share. Required: a. Using the information provided, prepare a 10-column worksheet for Stafford Flowers for the year ended December 31, 2021. b. Prepare a separate worksheet showing your adjusting entries in good form. c. Prepare accrual basis financial statements for 2021 to be presented to the bank. You should include a multiple step income statement, statement of retained earnings and a classified balance sheet. A statement of cash flow is not required. Your final product should be of professional quality and worth the $9,800 engagement fee Stafford's is paying your firm for the 2021 review of their financials.
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Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon
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