how can i make make financial statements for this business.

Question

The project should be submitted in the following order: Journal Entries, T-accounts, Unadjusted Trial Balance, Adjusted trial balance, Post Closing Trial balance, Multi-Step Income Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows. Font should be no smaller than 10.5, submissions should be printed single sided, each financial statement will fit on one page. Students may submit final project hand written, but will be marked down if submission is illegible. Credit will be awarded based on the students’ ability to prepare flawless financial statements for the month ended January 31, 2015. Please use the following Chart of accounts.

CHART OF ACCOUNTS
101 Cash 230 Interest Payable
106 Accounts Receivable 301 Common Stock
110 Allowance For Doubtful Accounts 350 Retained Earnings
126 Inventory 405 Sales Revenue
128 Prepaid Insurance 406 Sales Discounts and Allowance
131 Prepaid Rent 501 Cost of Goods Sold
135 Prepaid Advertising 520 Utility Expense
163 Office Equipment 525 Wage Expense
164 Mixing Barrels 530 Interest Expense
165 Factory Equipment 535 Rent expense
190 Accumulated Depreciation 545 Insurance Expense
201 Accounts Payable 550 Bad Debt Expense
215 Notes Payable 560 Depreciation Expense
220 Line of Credit 565 Advertising Expense
225 Income Taxes Payable 570 Income Tax Expense

Company Background and Accounting Policies:
• Grandpa’s Cough Inc. (GCI) sells a uniquely flavored cough syrup either wholesale or through its own storefront.
• Cases contain 24 bottles. Each bottle costs the company $2 to make and the company sells bottles for $4.5. Each case is sold for $90 the cost to ship is paid for by the customer. Customers pay at the last minute of their terms unless otherwise noted.
• Gene has a revolving line of credit with a local bank, if the cash balance drops below $15,000 then Gene will draw money against the line of credit in $5,000 increments, until the balance is above $25,000. Simple interest rate on the line is 3.4%. Interest accrues daily and paid at the end of each month.
• The company maintains inventory at $72,000, and will purchase materials every time the inventory drops below that amount in $4,000 increments, vendor pays shipping. Terms are N/15. Gene pays all bills at the last minute.
• Round all answers to the nearest dollar
 

Grandpa's Cough Inc.
Balance Sheet
As of December 31, 2015

Assets
Current Assets
Cash $ 16,000
Accounts Receivable 10,000
Allowance for Doubtful Accounts (1,000)
Inventory 50,000
Prepaid Insurance 700
Prepaid Rent 2,200
Total Current Assets $ 77,900

Fixed Assets
Office Equipment $ 3,500
Mixing Barrels 9,500
Factory Equipment 15,000
Less: Accumulated Depreciation (19,860)
Total Fixed Assets $ 8,140
Total Assets $ 86,040

Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $ 25,000
Interest Payable 44
Current Portion of Long Term Debt 1,600
Total Current Liabilities $ 26,644

Long Term Debt
Notes Payable 16,000
Total Long Term Debt 16,000
Total Liabilities $ 42,644

Stockholders' Equity
Retained Earnings $ 28,931
Common Stock 14,465
Total Stockholders' Equity 43,396
Total Liabilities and Stockholders' Equity $ 86,040

Date Transaction
January 1, 2015 Gene Autry became a new owner by investing $25,000 Cash and office equipment worth $6,000 in return for common stock of Grandpa’s Cough Inc.
1 Purchased Mixing Barrels worth $3,000 and Other Factory Equipment worth $600 on credit, N/30
1 Purchased Inventory on credit for $72,000 with terms N/15
1 Paid Vendor $15,000 for prior month purchases
2 Paid $4,500 for annual premium on insurance coverage starts at the end of the month.
3 During the grand opening of the store GCI sold 256 Bottles of Cough Syrup.
4 A wholesale customer ordered 100 cases, GCI shipped the order and billed the customer 2/5 N/10
5 Received payment from customer from prior month sale $5,000.
6 Sold 300 Bottles of Cough Syrup through the store.
7 Received half the payment for sale of goods on January 4
10 Paid $4,200 for three months’ rent for store front starting on January 1, 2015.
13 Sold 400 Bottles of Cough Syrup through the store
15 Shipped order for another wholesale customer 500 cases N/10
15 Received and paid Utility Bill for $500
18 Shipped order of 300 Cases to a wholesale customer N/10
20 Sold 625 Bottles of Cough Syrup through the store
25 Shipped order to wholesale customer 1,000 cases 2/10 N/30
26 Paid for mixing barrels and equipment purchased on January 1
27 Sold 1,000 bottles of Cough Syrup through the store
30 Paid wages under the table to employees of $15,000
31 Paid $2,000 for 12 month advertising campaign through local radio stations. The campaign starts February 1st.


 
Additional Project information:
• Ensure you are using the December 31 balance sheet for the beginning balances of your accounts.
• When you are setting up your accounts use the chart of accounts included on the front page (you will not need to create any new account or account number).
• Please follow the journal entry format from the first two weeks of class.
• There is only one general journal where all transactions are recorded.
• Pay close attention to the transactions as they are listed on page three, these are not all transactions that you will need to journalize. The accounting policies on page 1 will require you to post additional entries (it helps to keep a tickler file).





Adjusting Journal Entry Information:
The beginning balance in Prepaid Rent was for the factory as of December 31, 2015 the balance had two months remaining.

Prior Period Prepaid Insurance was for an annual policy that expires at the end of January.

The Note was borrowed on December 31, 2015 and holds interest of 3%. Interest is accrued and not paid at the end of the month. The first principle payment is due in the month of June.

GCI wrote off $5,000 of bad debt at the end of the month, and used the aging of receivables method to estimate the allowance for doubtful accounts to be $10,000

All depreciation is straight-line with no residual value.
Office equipment is expected to last 5 years
Factory Equipment is expected to last 4 years
Mixing barrels are expected to last 10 years.

Assume the income tax rate for GCI is 15%.

Answer 1

This is a comprehensive problem that requires diligent work. You cannot expect a solution here. I can get you started. A good approach is to make T-accounts for each balance sheet account and post the December 31 amount as the beginning balance. I suggest you do this manually with pen. then prepare journal entries for each transaction and post the entries to the T-accounts. As you post the entries, you will have to make new T-accounts for revenues and expenses. These will be used to prepare the income statement. 

 

Recording transactions is a simple matter of deciding what took place in an exchange. You record what you received and you record what you gave up. Usually the record is made in journal entries. It makes no sense to try to memorize journal entries. The idea is to analyze what was exchanged. You received or gave up assets and you use the debit and credit rules to record that. If you get cash, you debit the cash account, but you have to credit something else. For example, in exchange for the cash you performed a service, which means you earned revenue which is an increase in capital, recorded as a credit. If you paid cash in exchange for your room rent, the rent is an expense, which is a reduction of capital, so it is recorded with a debit, and cash decreased so it is recorded as a credit. If you pay cash for a computer, you are increasing one asset, the computer, and decreasing the other asset, cash. You just have to decide what was exchanged before you worry about what to debit or credit.

You incurred a liability (gave a promise to pay later) so a liability is credited, and you received merchandise, which is an asset that is debited. Or you got your promise back because you discharged the liability, so you debit the liability and credit the cash you paid.

Similarly with capital. You issued stock for cash so you received cash (a debit) and record a credit in owners’ equity representing the owner’s interest in the business assets. Or bought back stock giving up cash (a credit) and reducing the owner’s interest in the business (a debit in a capital account). You increase capital (credit revenue) by providing a service or product. You decreases capital (debit an expense) by using up assets or services. As long as you understand what was exchanged, you can decide what to debit and credit.

You have to understand that expenses are reduction in capital and revenues are increases in capital. That is why expenses are debits and revenues are credits. You could debit or credit the capital account directly when you have an expense or revenue, but then you would not be able to see the details of how capital changed. Expenses and revenues are just temporary subdivisions of capital that enable you to prepare an income statement and see why capital changed from operating a business.

When you have completed and posted all transactions you can find balances of the T-accounts and use them to prepare the unadjusted trial balance. Next, you have to make the adjusting entries.  Adjusting can take a long explanation for which there is no space here. but if you do the above you will have a good start.