# Happy Harry Pets was incorpora

In the books of Happy Harry Pets:

 Date Account Titles Debit Credit \$ \$ Jan 1 Cash 295,000 Common Stock 295,000 Feb 8 Inventory 4,000 Cash 4,000 Mar 1 Prepaid Insurance 9,300 Cash 9,300 Mar 31 Prepaid Rent 12,480 Cash 12,480 Apr 1 Equipment 18,000 Cash 18,000 Apr 10 Grooming Supplies 1,450 Accounts Payable 1,450 May 15 Inventory 10,730 Cash 10,730 May 30 Accounts Receivable 13,625 Service Revenue 13,625 June 1 Prepaid Advertising 864 Cash 864 June 30 Cash * 92,016 Discount on Bonds Payable 7,984 Bonds Payable 100,000 July 25 Accounts Receivable 14,225 Service Revenue 14,225 July 31 Accounts Receivable 6,650 Sales Revenue 6,650 July 31 Cost of Goods Sold ( 95 units x \$ 25 per unit) 2,375 Inventory 2,375 Aug 2 Accounts Receivable 6,280 Service Revenue 6,280

Contd.

 Date Account Titles Debit Credit \$ \$ Aug 6 Cash 6,517 Sales Discount 133 Accounts Receivable 6,650 Sep 15 Accounts Receivable 6,245 Service Revenue 6,245 Sep 29 Cash 1,250 Accounts Receivable 1,250 Oct 13 Accounts Receivable 7,300 Sales Revenue 7,300 Oct 13 Cost of Goods Sold 2,640 Inventory 2,640 Oct 29 Cash 3,650 Accounts Receivable 3,650 Nov 1 Depreciation Expense ( \$ 2,400 / 24 months ) x 7 months 700 Accumulated Depreciation : Equipment 700 Nov 1 Cash 2,000 Accumulated Depreciation : Equipment 700 Equipment 2,400 Gain on sale of equipment 300 Nov 15 No entry needed 0 0 Dec 15 Salaries and Wages Expense 3,500 Cash 3,500

* PVIFA 8%, n=5 = [ { 1 – ( 1 / 1.08) 5 }/ 5 ] = 3.9927

PVIF8%, 5th year = ( 1 / 1.08 ) 5 =0.6806

Present value of the bonds = 100,000 x 6 % x 3.9927 + 100,000 x0.6806 = 23,956.20 + 68,060 = \$ 92,016.20 :

3. Happy Harry Pets

December 31

 Account Titles Debit Credit \$ \$ Cash 341,559 Accounts Receivable 42,775 Inventory 9,715 Grooming Supplies 1,450 Prepaid Insurance 9,300 Prepaid Rent 12,480 Prepaid Advertising 864 Equipment 15,600 Accounts Payable 1,450 Bonds Payable 100,000 Discount on Bonds Payable 7,984 Common Stock 295,000 Sales Revenue 13,950 Service Revenue 40,375 Gain on sale of Equipment 300 Sales Discounts 133 Cost of Goods Sold 5,015 Salaries and WAges Expense 3,500 Depreciation Expense 700 Totals 451,075 451,075

4. In the books of Harry Happy Pets:

 Account Titles Debit Credit December 31 \$ \$ a. Grooming Supplies Expense 580 Grooming Supplies 580 b. Bad Debt Expense ( \$ 42,775 x 4%) 1,711 Allowance for Doubtful Accounts 1,711 c. No entry required d. e. Interest Expense ( \$ 92,016 x 8% x 6 months / 12 months) 3,681 Interest Payable ( \$ 100,000 x 6% x 1/2) 3,000 Discount on Bonds Payable 681 f. Insurance Expense ( \$ 9,300 / 12 x 10) 7,750 Prepaid Insurance 7,750 Rent Expense ( \$ 12,480 / 12 x 9) 9,360 Prepaid Rent 9,360 Advertising Expense ( \$ 864 / 12 x 7) 504 Prepaid Advertising 504 Depreciation Expense ( \$ 15,600 / 24 months x 9 months) 5,850 Accumulated Depreciation : Equipment 5,850 g. Salaries and Wages Expense ( \$ 3,500 x 1 / 2 ) 1,750 Salaries and Wages Payable 1,750 h. Retained Earnings 650 Dividends Payable 650

5. Happy Harry Pets

December 31

 Account Titles Debit Credit \$ \$ Cash 341,559 Accounts Receivable 42,775 Allowance for Doubtful Accounts 1,711 Inventory 9,715 Grooming Supplies 870 Prepaid Insurance 1,550 Prepaid Rent 3,120 Prepaid Advertising 360 Equipment 15,600 Accumulated Depreciation : Equipment 5,850 Accounts Payable 1,450 Salaries and Wages Payable 1,750 Interest Payable 3,000 Bonds Payable 100,000 Discount on Bonds Payable 7,303 Common Stock 295,000 Sales Revenue 54,192 Gain on sale of Equipment 300 Cost of Goods Sold 5,015 Salaries and Wages Expense 5,250 Insurance Expense 7,750 Grooming Supplies Expense 580 Rent Expense 9,360 Advertising Expense 504 Depreciation Expense 6,550 Bad Debt Expense 1,711 Interest Expense 3,681 Totals \$ 463,253 \$ 463,253

7. a. Happy Harry Pets

Income Statement

For the year ended December 31

 \$ \$ Income from Operations Net Sales Revenue 54,192 Cost of Goods Sold 5,015 Gross Profit 49,177 Selling, General and Administrative Expenses Selling Expenses Supplies Expense 580 Advertising Expense 504 Total Selling Expenses 1,084 General and Administrative Expenses Salaries and Wages Expense 5,250 Insurance Expense 7,750 Rent Expense 9,360 Bad Debt Expense 1,711 Total General and Administrative Expense 24,071 Total Selling, General and Administrative Expenses 25,155 EBITDA 24,022 Depreciation Expense (6,550) Operating Income 17,472 Other Income / (Expense) Gain on sale of Equipment 300 Interest Expense (3,681) ( 3,381) Net Income \$ 14,091

b. Happy Harry Pets

Statement of Stockholders’ Equity

For the year ended December 31

 Balance, January 1 \$ 0 Capital contributed 295,000 Net income for the period 14,091 Total Stockholders’ Equity before distributions 309,091 Less: Dividends declared ( 650) Balance, December 31 \$ 308,441

c. Happy Harry Pets

Balance Sheet

December 31

 Assets \$ \$ Liabilities and Stockholders’ Equity \$ \$ Current Assets Current Liabilities Cash 341,559 Accounts Payable 1,450 Accounts Receivable, net 41,064 Salaries and Wages Payable 1,750 Inventory 9,715 Interest Payable 3,000 Supplies 870 Dividend Payable 650 Prepaid Insurance 1,550 Total Current Liabilities 6,850 Prepaid Rent 3,120 Long-Term Liabilities Prepaid Advertising 360 Bonds Payable 100,000 Total Current Assets 398,238 Discount on Bonds Payable (7,303) 92,697 Property, Plant and Equipment Total Liabilities 99,547 Equipment 15,600 Accumulated Depreciation (5,850) 9,750 Stockholders’ Equity 308,441 Total Assets \$ 407,988 Total Liabilities and Stockholder’s Equity \$ 407,988

Happy Harry Pets

Statement of Cash Flows

For the year ended December 31

 \$ \$ Cash Flows from Operating Activities Net Income 14,091 Adjustments to reconcile the net income to net income fromoperations Depreciation Expense 6,550 Interest Expense 3,681 Gain on Sale of Equipment (300) Increase in Accounts Receivable (41,064) Increase in Inventory (9,715) Increase in Supplies (870) Increase in Prepaid Insurance (1,550) Increase in Prepaid Rent (3,120) Increase in Prepaid Advertising (360) Increase in Accounts Payable 1,450 Increase in Salaries and Wages Payable 1,750 (43,548) Net cash used in operating activities (29,457) Cash Flows from Investing Activities Cash paid for acquiring equipment (18,000) Cash received on sale of equipment 2,000 Net cash used in Investing Activities (16,000) Cash Flows from Financing Activities Cash received from issuance of common stock 295,000 Cash received from issuance of bonds payable 92,016 Net cash flows from Financing Activities 387,016 Net increase in cash 341,559 Cash, January 1 0 Cash, December 31 341,559

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