Question;case study: Huff & Puff, Inc.Assume the following;A.;The current date is December;28, 2014.;B.;You are the controller for Huff;Puff, Inc., a health club gym and health food distributor.;C.;The president of the company;has informed you that the company will be applying for a bank loan. As part of the loan application, the bank;wants financial statements for the year ending December 31, 2014. The president is concerned that the company?s;financial statements will not be strong enough to obtain the loan so she has;suggested how you should account for certain transactions during the last month;of the year.;D.;Prior to the transactions below;Huff & Puff, Inc. is reporting net income of $70,000.;These are the transactions in question;1.;Health;Club Memberships: Huff & Puff;Inc. received $300,000 on December 1, 2014 as payment for health club;memberships for the period December 1, 2014 ? May 31, 2015. The president has told you to recognize;$300,000 of revenue in 2014.;2.;Sale of Merchandise: The company recently shipped merchandise to;another company owned by the president?s brother. On December 27, 2014 Huff & Puff, Inc.;received a check for $450,000 from the company. While in the president?s office, you heard;her say to her brother on the phone, ?Don?t worry about the cost for this;stuff. I know you don?t want it. Don?t worry. You have a full right of return for 90;days. Just hold onto it until March;15, 2015 and then return all of it.;We?ll give you a full refund when you send it back.? The merchandise cost Huff & Puff, Inc.;$200,000.;3.;Advertising: On December 20, 2014 Huff & Puff, Inc.;paid $60,000 for radio and TV advertising.;The president has suggested that you record the transaction in Prepaid;Advertising and amortize the cost over a 12-month period beginning January 1;2015 because ?that?s when payment will benefit the company.?;4.;Instructors? Salaries: Fitness instructors performed services for;Huff & Puff, Inc. from December 1 ? December 24, 2014 for which they will;receive $80,000. The president;indicated, ?There?s no need to record those salary expenses until we pay them;on January 5, 2015.?;Required;1.;Describe how each of the;transactions should be accounted for in accordance with generally accepted;accounting principles (GAAP). Also indicate how the transactions would be;reported in the company?s year-end Income Statement and Balance Sheet.;Support your;reasoning with the concepts you have learned from the ?Logic Principles? and;?Prepaids & Accruals? lectures covered in your D2L audios and Lecture;Notebook.;2.;Show the journal entry(ies) that;would be made for each of the transactions, labeled ?Journal Entries - President?s;Suggestions?.;3.;Show a second set of journal;entry(ies) that would be made for each of the transactions, labeled ?Journal;Entries - GAAP?.;4.;Prepare a schedule showing what;net income will be, labeled ?Net Income - President?s Suggestions?. Begin your schedule with ?Net Income Before;Transactions? of $70,000. (Show and;label all calculations.);5.;Prepare a second schedule;showing what net income will be, labeled ?net Income - GAAP?. Begin your schedule with ?Net Income Before;Transactions? of $70,000. (Show and;label all calculations.);Note;1.;Consider the knowledge you have;gained from the material in your audio lectures in D2L that cover the Revenue Recognition Principle, the Matching Principle, and Prepaids and Accruals.;2.;Clearly label all your answers.;3.;Limit your answer to 3-4 pages.;4.;Precisely following the requirements;is part of the scoring.
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