Reference no: EM132694213

Question - On September 1, 2020, a few McMaster friends decided to start McMaster Friends Candy Inc.(MCI), a business of selling candy to people! Our McMaster friends have started small, as a private company with only one location, so they are using ASPE for their financial statements and records. The following events and transactions took place for MCI in September 2020. Beginning of the month, on September 1At the beginning of the month, our McMaster friends invested a total of $500,000 in cash into MCI. MCI purchased a property right away at a prime location right by the campus for $425,000. The purchase is for both land and building. The land is valued at $350,000 and the building is valued at $75,000. MCI paid $125,000 in cash and took out a $300,000 loan from the bank on the date of purchase to finance the purchase. The entire principal of the loan is due five years from the date of the loan. Interest on the loan accrues at a rate of 2% per annum, and interest must be paid annually on each anniversary of the loan date. MCI thinks the building will last another 50 years, after which it will be worth basic ally nothing. MCI also thinks the building will deliver economic benefits to MCI equally over its useful life of 50 years. MCI hired three staff at a rate of $3,000 per month each. Salaries for each month are to be paid on the first day of the next month, with the first payment in October. MCI signed up for phone and internet service with an up and coming local internet service provider. Seeing how MCI is just starting up, the local internet service provider offered MCI a deal of $35 a month, but MCI must pay an entire year's fee up front. MCI agreed to and paid for the deal. MCI decided to keep things easy to start and will sell only one type of candy for now. It purchased its first batch of 5,000 candies for $20,000in cash. Middle of the month, on September 15In the middle of the month, on September 15, MCI thought things were going well, and bought another batch of 10,000 candies for $25,000on credit. Not wanting to just leave cash sitting in a bank account, MCI also invested in a diversified portfolio of publicly traded shares. They paid $250,000 for the shares. MCI will account for the shares at fair value, with any changes in fair value going through net income. They plan to hold the shares for at least a few years.

MCI has come to realize that every indication suggests their business is going to be really successful and generate a ton of cash flows in the future, so they decided to pay $15,000 to register the trademark they designed for their business. End of month, September 30A new large customer has already heard about how good MCI's candy is. They decided to make a deposit of $25,000, just to secure the next batch of candy that they want to pick up from the store in November! MCI thinks it might order extra candy next month to make sure it has enough for this customer in November. MCI checked the investment portfolio share prices on the public stock exchange, and found out the fair value of their investment portfolio has dropped to $225,000. MCI realized it hasn't been tracking its sales as they are being made! But that's okay, they can fix things on time for the preparation of their September financial statements. For the things they fix, they'll just date the journal entries on September 30. First, MCI decided to use a periodic inventory system and the first-in, first-out (FIFO) method for inventory costing. An end-of-month inventory count reveals MCI has 3,000 candies left. Second, of the candies it has sold, it received cash of $60,000 and IOU notes (promises to pay MCI) of $30,000. No one has actually told MCI they won't pay up yet, but based on an end-of-month analysis of the IOU notes, MCI has strong reasons to believe that they won't get paid for $5,000 out of the IOU notes.

Required - You are a budding and aspiring CPA. MCI has hired you to prepare its September 2020financial statements and records, as follows. Prepare a general journal containing all journal entries, in good form, for all events and transactions that occurred relating to September 2020. Ensure the general journal contains all adjusting entries as well, in good form.

Do an adjusted trial balance, income statement, statement of owners' equity, balance sheet, and post-closing trial balance, in good form. If allocations need to be made, round to the nearest month. Ignore taxes. In addition, MCI has two questions for you. First, MCI has great ambitions for expansion and one day listing on the Toronto Stock Exchange. Do you have any advice for MCI about the way it should do its accounting in the future? MCI is looking into purchasing its next store already. MCI has found a good deal on a new property that contains land and building. MCI is offered both land and building for $500Kin cash, but an independent valuation expert suggests the land is actually worth $375K and the building is actually worth $250K.  Can you give some ideas to MCI about how they might account for this transaction once they go through with this deal?