Reference no: EM132663866

Question - The balance sheet for Bua Enterprises as of December 31, 2020 is shown below:

Bua Enterprises, Inc. Balance Sheet As of December 31, 2020

Assets:

Cash $10,000

Accounts receivable, net of $1,000 allowance 3,000

Inventory 7,000

Total current assets 20,000

Equipment, net of $10,000 accumulated depreciation 20,000

Total assets $40,000

Liabilities:

Accounts payable $1,000

Salaries payable 2,000

Total current liabilities 3,000

Notes payable, 5%, due 2025 10,000

Total liabilities 13,000

Equity:

Common stock 10,000

Retained earnings 17,000

Total liabilities and equity $40,000

In January 2021, Bua had the following events/transactions take place:

January 1: Sold inventory costing $1,000 for $3,000 to customers on account.

January 2: Purchased $5,000 of inventory on account.

January 5: Paid $1,000 to suppliers of inventory for past purchases.

January 7: Paid salaries owed to employees as of December 31.

January 10: Signed an agreement with S. Young to serve as CFO beginning February 15, 2021.

January 15: Paid salaries to employees for the first two weeks of January, $2,000.

January 17: Sold inventory costing $2,000 for $5,000 to customers on account.

January 28: Paid the electricity, internet, trash, water, and sewer bills for the month of January, $500.

January 29: Collected $3,000 from customers for past sales transactions.

January 30: Paid $6,000 to the owner of Bua's facilities for rent for January through June 2021.

Other information:

i. As of January 31, employees who collectively earn $2,000 every 2 weeks have not been paid since January 15.

ii. The Note Payable was borrowed on December 31, 2020. Interest on the note is not required to be paid until 2025 but accumulates during the term of the loan.

iii. Bua estimates that $1,500 of the accounts receivable will likely not be collectible.

iv. Bua's board of directors decided to declare a dividend of $1,000 on January 31, to be paid February 15.

v. On February 10 (after month end but before the financial statements were prepared), Bua entered into a significant joint venture with Owens Corporation to manufacture accounting professor action figures for sale in the Boston metropolitan area.

vi. Depreciation of $500 needs to be recorded on the equipment.

Required -

a. Prepare journal entries to account for the transactions above.

b. Post transactions to the general ledger (T-accounts). [Note: don't forget that some accounts have beginning balances (as of December 31, 2020).]

c. Prepare adjusting entries needed to properly reflect all information through January 31.

d. Prepare adjusted trial balance as of January 31, 2021.

e. Prepare income statement for the month of January 2021.

f. Provide the closing entry needed as of January 31, 2021 and post it to the general ledger.

g. Prepare classified balance sheet as of January 31, 2021.

h. Prepare cash flow statement following the direct approach.

i. Briefly list and describe any disclosures that Bua would need to make in the narrative that accompanies the financial statements, assuming that Bua is NOT a publicly-traded company.

j. Compute the current ratio and debt to equity ratio as of December 31 and January 31 and comment on Bua's liquidity and solvency. Compute Bua's return on assets and comment on Bua's profitability in the month of January.