Question

Create trial balance, T-accounts, balance sheet and income statement

The following events occur in July 2014:

1 – Open a bank account for Peyton Approved.
1 – You take $15,000 from your personal savings account and buy common stock in Peyton Approved.
3 – Your parents lend the company $10,000 cash, in exchange for a two-year, 6% note payable. Interest and the principal are repayable at maturity.
7 – Sign a lease agreement for retail/bakery space. The agreement is for 1 year, with the option to extend the lease on a month-to-month basis after 1year. The rent is $1,500 per month. The lease period starts on July 15, first and last month’s rent due at that time. Subsequent rents are due on the 15th day of each month.
10 – Pay $375 to the county for a business license.
11 – Purchase a cash register for $250 (deemed to be not material enough to qualify as depreciable equipment—use misc. exp.).
13 – You have baking equipment, including an oven and mixer, that you have been using for your home-based business and will now start using in the bakery. You estimate that the equipment is currently worth $5,000, and you transfer the equipment into the business in exchange for additional common stock. The equipment has a 5-year useful life.
13 – Pay $200 for business cards/flyers/posters/ads to use for advertising.
14 – Pay $1,000 for baking ingredients (use baking supplies account).
14 – Pay $300 for miscellaneous (use misc. supplies).
15 – Hire part-time helper to be paid $12 per hour. Pay periods are the 1st through the 15th and 16th through the end of the month with paydays being the 20th for the first pay period and the 5th of the following month for the second pay period.
15 – Pay first and last month’s rent.
16 – Open the doors of the bakery.
31 – Pay $1,200 for a 12-month insurance policy.

The following events occur during the next 6 months:

Bakery sales are recorded on the last day of the month. The following sales occurred:

July – $5,000
August – $20,000
September – $22,500
October – $27,000
November – $25,000
December– $30,000

The following baking supplies purchases are made on credit:

August 8 - $8,500, net 30 – paid 8/30
September 10 - $9,000, net 30 – paid 10/1
October 12 - $10,000, net 30 – paid 11/1
November 10 - $10,000, net 30 – paid 12/1
December 4 - $12,000, net 30 – paid 1/2

The following misc. supplies were purchased:

August 25 – $300
September 19 – $325
October 14 – $310
November 11 – $300
December 8 – $300

Through December 31, the part-time employee worked the following hours: (ignore payroll taxes)

Pay period ending Hours
7/31 10
8/15 40
8/31 35
9/15 38
9/30 40
10/15 37
10/31 40
11/15 35
11/30 30
12/15 45
12/31 40

The following monthly bills are received and paid:

Rent – paid each 15th - $1,500
Phone – received on the 30th of each month, paid on the following 10th - $45

You pay yourself via the issuance of dividends. The following dividends were paid and issued:

9/30 – 2,000
10/30 – 2,500
11/30 – 2,500
12/31 – 2,500

Many customers have been asking for more hypo-allergenic products, so in November you start carrying a line of hypo-allergenic shampoos on a trial basis. The following information relates to the purchase and sales of the shampoo: You use the perpetual inventory method. You are uncertain as to which valuation method to use—FIFO, LIFO, or weighted average, so you calculate inventory using all three and then decide which one you would like to choose.

Purchases
11/7: 10 bottles purchased at $6
11/20: 20 bottles purchased at $6.10
12/1: 25 bottles purchased at $6.05
12/14: 30 bottles purchased at $6.00
12/26: 20 bottles purchases at $6.08

Sales – selling price, $8.50 a bottle
11/15: 8 bottles
11/30: 18 bottles
12/15: 22 bottles
12/24: 24 bottles

On December 31, the following adjustments must be made:

Depreciation of baking equipment transferred to company on 7/13. Assume ½ month of depreciation in July using the straight-line method.
Accrue interest for note payable (Assume a full month of interest for July).
Record insurance used for the year.
An inventory of baking supplies shows $1,100 of supplies are remaining.
An inventory of misc. supplies shows $50 remaining.

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