Accounting

The Baguette Company I

Background: The Baguette Company (BC) was incorporated by its owners, Fred and Barney, on December 20, 2011. Operations began on January 1, 2012. BC prepares and sells customized sandwiches out of a single storefront to walk in customers. Currently, Fred and Barney are in the process of preparing a loan application to finance a catering operation. Fred and Barney know that they will need to prepare some formal financial statements for the lending officer. Although they have kept track of their financial transactions, they have no formal accounting system. They have asked you to prepare a set of financial statements for the nine months ended September 30, 2012. You know that your first task is to prepare a beginning balance sheet (i.e. as of January 1, 2012).

Materials: A narrative of transactions related to BC for the period of December 20, 2011 to September 30, 2012 is provided below.

Instructions: Construct T accounts for BC and record the transactions that transpired in the weeks prior to the commencement of operations. Prepare a balance sheet for BC as of January 1, 2012.

Fred and Barney, sandwich kings, began plans to open their sandwich shop in early 2012. For tax reasons, they have decided to incorporate their business. Each partner agreed to buy 50% of the shares for $25,000. Fred obtained his $25,000 from his savings account. Barney obtained $15,000 from his savings account and took out a second mortgage on his house to obtain the other $10,000. The interest rate on the mortgage was 10%.

The two entrepreneurs paid $2,200 cash for a deposit for a storefront lease. In addition, they paid $2,200 cash for January rent on December 31, 2011.

During the last week of December 2011, equipment was purchased and installed for $10,000 cash, and a contractor was paid $10,000 cash for renovating the leased storefront. In addition, supplies where purchased for $5,000, of which $4,500 was paid in cash and $500 was on...