You are tired of working for someone else, so you decided to open a bakery and operate it as a sole proprietor. You plan to sell an international assortment of muffins and cookies, ready-made cakes, and specialty made-to-order cakes.

Understanding that you will not be able to open the store right away, you need to generate some income somehow. Since it is November and the holidays are around the corner, you decide to cater corporate events and parties. This type of business provides a service rather than simply selling goods to consumers.

To get you started, you cash your U.S. Savings Bonds and receive $920, which you deposit in your personal bank account. On November 1, 2022, you open a bank account under the business name of Sunrise Bake Goods and transfer $800 from your personal account to the new account.

You start to gather some equipment. You have an excellent top-of-the-line mixer that originally cost you $750. You decide to start using it in your new business. You estimate that the equipment is currently worth $300. You invest the equipment in the business.

You buy some advertising supplies (pamphlets, business cards, and decals for your car), and you purchase $425 worth of baking supplies such as flour, sugar, butter, and fruit.

You quickly realize that your initial cash investment is not enough. Your parents lend you $2,500 cash, for which you sign a 24-month note payable in the name of the business. Your parents decide to charge an interest of 6% on the note payable extended on November 16. The loan plus interest is to be repaid in 24 months You deposit the money in the business bank account. With this money, you purchase more baking equipment for $1,200.

During the month of November, your first month opened for business, you held a small event earning $125 in cash, and you booked a party for December 4 for $160 for which you received a $30 deposit.

You also had some additional expenses. You received an electric bill for $125, a cellphone bill for $50, and you purchased a one-year insurance policy for $1,320 that will expire on December 1, 2023.

On the last day of the month, a friend asks you to host a party at her office for about 30 employees. You create an invoice for $250 and give it to her. She informs you that she will submit it for payment, and it will be paid at some point in December.

Throughout the month you recorded the transactions in the general journal and posted all the transactions to the corresponding ledger accounts. At the end of November, you recorded the adjustments such as the depreciation of the equipment and the supplies that were used. Last, you prepared the financial statements and closed the temporary accounts producing a post-closing trial balance.

Sunrise Bake Goods
Post-Closing Trial Balance
30-Nov-22
Account	Debit	Credit
Cash	$145
accounts Receivable	250
supplies	390
Prepaid insurance	1,320
Equipment	1,500
Notes Payable		$2,500
Accounts payable		$175
Accumulated depreciation: equipment		$25
Accrued interest payable		$6
Unearned revenue		$30
Owner's Capital		$869
Total	$3,605	$3,605

Part A – Starting a New Month

It is now December 1, 2022, and you are ready to get started with a new month. You are gearing up for the winter holiday season. During the month of December 2022, the following transactions occur.

12/1–You hire an assistant at an hourly wage of $15 to help with baking and some administrative duties.

12/5 – You hold the party that was booked on November 25. The balance outstanding is received.

12/8 – You receive a check for the amount due from your friend’s party held on November 30.

12/9 – You receive $900 in advance from the local school board for 5 parties that they will hold during December and January.

12/10 – Pay the utilities invoice outstanding from November 23.

12/15 – Pay the cell phone invoice outstanding from November 30.

12/16 – Issue a check to your brother for $860 for the design of the website.

12/19– Receive a deposit of $50 on a party scheduled for early January.

12/20 –Additional revenues during the month for parties amounts to $5,700. (You have not had time to account for each party individually.) $4,000 in cash has been collected and $1,700 is still outstanding. (This is in addition to the December 5 and December 9 transactions.)

12/22 –Additional baking supplies purchased during the month that include sugar, flour, butter, and eggs amount to $1,000 cash.

12/23 –Issue a check to your assistant for $1,800. Your assistant worked approximately 120 hours from the time in which she was hired until December 23.

12/28 –You pay yourself $600 from the company’s profit.

Required for part A

Use the templates in the Assignment Package

1. Journalize the transactions.
2. Post the December transactions to the general ledger accounts. Make sure to add the beginning balances based on the November pos-closing trial balance.
3. Prepare the trial balance for December.

Part B – Closing the Cycle

As of December 31, year-end, the following adjusting entry data are provided.

1. A count reveals that $45 of brochures and posters were used.
2. Depreciation is recorded on the baking equipment purchased in November. The baking equipment has a useful life of 5 years.
3. Amortization (which is like depreciation) is recorded on the website. (Credit the Website account directly for the amortization amount.) The website is amortized over a useful life of 2 years and was available for use on December 1.
4. Interest on the note payable is accrued. Round to nearest dollar.
5. One month’s worth of insurance has expired.
6. You are unexpectedly telephoned on December 28 to hold a party at the neighborhood community center on December 31, which you hold. In early January you will send an invoice for $650 to the community center.
7. A count reveals that $1,125 of baking supplies were used.
8. A cell phone invoice is received for $75. The invoice is for services provided during the month of December and is due on January 15.
9. Because the party occurred unexpectedly on December 31 and is for such a large group of children, your assistant helps. Your assistant worked 7 hours at a rate of $15 per hour.
10. An analysis of the unearned revenue account reveals that two of the five parties paid for by the local school board on December 9 still have not been held by the end of December. The $50 deposit received on December 19 for another party also remains unearned.

Required for part B:

Use the templates in the Assignment Package

1. Prepare adjusting journal entries for December.
2. Post adjusting entries to ledger. Use the ledger from Part A.
3. Prepare adjusted trial balance for December 31, 2020.
4. Prepare the Income statement, Statement of Owner’s Equity, and Balance Sheet.
5. Prepare closing entries as of December 31, 2020
6. Prepare a post-closing trial balance

Answer rating: 100% (QA)

Part A Starting a New Month Journal entries December 1 2022 Date Account Debit Credit 1212022 Wage Expense 15 Cash 15 December 5 2022 Date Account Debit Credit 1252022 Cash 130 Unearned Revenue 130 De... View the full answer