Question

Natalie Lawson spent much of her youth playing sports. Shepassed many hours on the soccer field and in the dance studio. AsNatalie grew older, her passion for healthy living continued as shestarted practising yoga. Now, at the start of her second year incollege, Natalie is investigating various possibilities forstarting her own business as part of the requirements of theEntrepreneurship program she is taking. A long-time friend insiststhat Natalie has to somehow include healthy living in her businessplan and, after a series of brainstorming sessions, Natalie settleson the idea of operating a smoothie business. She will start on apart-time basis. She will make the product at home, bottle it, andtake it to the yoga studio where she exercises because they haveagreed to purchase it on a regular basis. Now that she has startedthinking about it, the possibilities seem endless. During thesummer, she will concentrate on fresh fruit and vegetablesmoothies. The first difficult decision is coming up with theperfect name for her business. In the end, she settles on “HealthySmoothies” and then moves on to more important issues.

During the month of April 2017, the following activities takeplace:

Apr.	12	Natalie cashes her Canada Savings Bonds and receives $980, whichshe deposits in her personal bank account.
	13	She opens a bank account under the name “Healthy Smoothies” andtransfers $900 from her personal account to the new account.
	15	Natalie realizes that her initial cash investment is not enough.Her mother lends her $3,000 cash, for which Natalie signs aone-year, 3% note payable in the name of the business. Nataliedeposits the money in the business bank account.
	18	Natalie pays $325 to advertise in the April 20 issue of hercommunity newspaper. Natalie hopes that this ad will generaterevenue during the months of May and June.
	20	She buys supplies, such as protein powder, cups, straws, andfresh fruit and vegetables, for $198 cash.
	22	Natalie starts to investigate juicing machines for her business.She selects an excellent top-of-the-line juicer that costs $825.She pays for it using her own personal account.
	23	Natalie prepares her first batch of smoothies to bring to theyoga studio. At the end of the first day, Natalie leaves an invoicefor $300 with the studio owner. The owner says the invoice will bepaid sometime in May.
	24	A $98 invoice is received for the use of Natalie's cell phone.The cell phone is used exclusively for the Santé Smoothiesbusiness. The invoice is for services provided in April and is dueon April 30.
	28	The yoga studio where Natalie sold her first smoothies orderssmoothies for the next month. Natalie is thrilled! She receives$125 in advance as a down payment.

PART 1: APRIL MONTH (33 marksavailable)

Requirement 1: Natalie has hired youto be her bookkeeper. Prepare the required journalentries for the above events. Explanations are notrequired and round to the nearest dollar. (17 marks)

Requirement 2: Post the entries tothe general ledger using the t-account format. (9marks)

Requirement 3: Prepare theunadjusted trial balance as of July 31, 2013. (7 marks)

PART 2: APRIL MONTH END (36marks)

It is the end of April and Natalie has been in touch with hermother. Her mother is curious to know if Natalie has beenprofitable and if Natalie requires another loan to help finance herbusiness. Natalie too would like to know if she has been profitableduring her first month of operation. Natalie realizes that, inorder to determine Santé Smoothies' income, she must first makeadjustments. Natalie puts together the following additionalinformation:

1. A count reveals that $105 of supplies remain at the end ofApril.

2. Natalie was invited to deliver smoothies to a summer barbecueat her local community centre. At the end of the day, she left aninvoice for $175 with the facility manager. Natalie had not hadtime to record this invoice in her accounting records.

3. Because there were so many guests expected to attend thebarbecue in item 2, she asked a friend to help with making thesmoothies and promised to pay her $12 an hour. The payment to herfriend was made on May 4, 2017, for four hours of work.

4. Natalie estimates that all of her equipment will have auseful life of three years or 36 months. (Assume Natalie decides torecord a full month's worth of depreciation, regardless of when theequipment was acquired by the business.)

5. Recall that Natalie's mother is charging 3% interest on thenote payable extended on April 15. The loan plus interest is to berepaid in 12 months. (Calculate interest to the nearest month.)

Requirement 4: Prepare the necessaryadjusting journal entries. (10 marks)

Requirement 5: Post the adjustingjournal entries. (15.5 marks)

Requirement 6: Prepare the adjustedtrial balance. (10.5 marks)

PART 3: FINANCIAL STATEMENTS (19marks)

Natalie had a very busy May. At the end of the month, Nataliejournalized and posted her adjusting entries, and prepared thefollowing adjusted trial balance at May 31, 2017:

HEALTHY SMOOTHIES Adjusted Trial Balance May 31, 2017
	Debit	Credit
Cash	$3,060
Accounts receivable	675
Supplies	95
Equipment	1,550
Accumulated depreciation—equipment		$66
Accounts payable		88
Unearned revenue		100
Interest payable		11
Notes payable, 3%, principal and interest due April 15, 2018		3,000
N. Koebel, capital		1,725
Revenue		1,225
Advertising expense	325
Salaries expense	48
Telephone expense	174
Supplies expense	211
Depreciation expense	66
Interest expense	11
	$6,215	$6,215

Using the information in the adjusted trial balance, do thefollowing:

Requirement 7: Prepare an incomestatement for the two months ending May 31, 2017. (5 marks)

Requirement 8: Prepare the Statementof Owner’s Equity for the two months ended May 31, 2017,(3marks)

Requirement 9: Prepare a ClassifiedBalance Sheet at May 31, 2017. (8 marks)

Requirement 10:Calculate Healthy Smoothies'

current ratio and acid-test ratio. (2 marks)

Comment on Healthy Smoothies’ liquidity. (1 marks)

PART 4: CLOSING (12 marks)

Requirement 11: Natalie has decidedthat her year-end will be May 31, 2017. Prepare closing entries.(5.5 marks)

Requirement 12: Prepare apost-closing trial balance. (6.5 marks)