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Rocky Mountain

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Submitted By dukekitt
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Rocky Mountain Chocolate Factory Inc.—
Preparing Financial Statements – Solution Adapted

a. Rocky Mountain Chocolate Factory manufactures the inventory it sells at stores it owns and sells product to franchisees. The company is a manufacturer/retailer; and thus one can predict that the balance sheet will include inventories and property and equipment on the asset side. As the company is a retailer, we would not expect a large accounts receivable balance (their sales are for cash or on credit cards, which are the same as cash from their perspective). However, their franchisees may owe substantial royalty payments which would be included as receivables as well as amounts due to Rocky Mountain for supplies and advertising. The liability side of the balance sheet likely includes a number of current liabilities (for payments due to suppliers and employees) and long-term debt if the company has borrowed or uses capital leases to finance store purchases.

b. See the solutions toward the end of the document.

General journal entries are NOT covered or used in the course – shown here FYI.

1. Dr. Inventories (CurA) 7,500,000 Cr. Accounts payable (CurL) 7,500,000 To record purchase of inventory on account 2. Dr. Inventories (CurA) 6,000,000 Cr. Accrued salaries and wages (CurL) 6,000,000 To record factory wages incurred 3. Dr. Cash and cash equivalents (CurA) 17,000,000 Dr. Accounts receivable (CurA) 5,000,000 Cr. Sales (I/S) 22,000,000 To record sales for cash and on account

Dr. Cost of sales(I/S) 14,000,000 Cr. Inventories (CurA) 14,000,000 To record cost of inventory sold 4. Dr. Accounts payable (CurL) 8,200,000 Cr. Cash and cash equivalents…...

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