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Jeatis Inc. is a small ice cream producer, that sells to other small business and beach-stands. Balance sheet on December 31st, 2019:

The reporting period is from January 1st to December 31st, 2020 for which following information is available:

1. Production takes place from 1st of January until 30th November. In periods, when no production is carried out, there is no work in process (WIP).

2. In 2020, Jeatis Inc. produced 50,000 tons of ice cream, of which 90% is sold and delivered to final customers.

3. Normal selling price is $150 pr. ton of ice cream. Total discounts in 2020 amount to $67,500.

4. On December 31st the Account receivable is $875,000. and Jeatis Inc. estimates that 5% of it should be classified as doubtful accounts.

5. The stock of raw materials is on December 31st valued at $422,000. During 2020, the firm bought raw materials for $1,285,000 (cash payment).

6. Labor costs: Direct labor cost in production amount to $1,025,000 (full cash payout) Indirect labor cost in production amount to $560,000 (full cash payout) Labor cost in general administration amount to $1,025,000 (90% of which is played out in cash during 2020)

7. 75% of the rented building is used for production purposes, the rest is used by the general administration. Total rent in 2020 is $1,260,000.

8. On January 3rd, 2020 Jeatis Inc. signed contract with a subcontractor, which means that the subcontractor is responsible for all deliveries during the 2020 and 2021 seasons. The full contract payment is $1,500,000 and was paid in cash at the beginning of 2020.

9. Depreciation in 2020 are Page 4 out of 5 Production equipment: $125,000 Office equipment: $15,000 IT equipment: $5,000 Office and IT equipment are used by the general administration

10. Jeatis Inc. ordered new phones (part of IT equipment) for $12,800 at the end of the season. They received both the equipment and the invoice on November 23rd, 2020. Jeatis Inc, is planning to take full advantages of the fact that the last date of payment on the invoice is January 23rd, 2021. Any depreciation on this equipment is included in the beforementioned depreciation on IT equipment.

11. Debt on the balance sheet is an equal mortgage dept, with an annual (principal) payment of $40,000. Interest rate is 2% pr. annum. Payments (principal payment and interest rates) are made at the end of the reporting period and there are no additional financing costs.

12. On September 30th, 2020 the local authorities ordered Jeatis Inc. to clean up an area around the firms production facilities. Jeatis Inc. is in contact with the authorities about some details and has therefore not completed the task yet. Jeatis Inc. estimates that the cost will be $50,000.

13. All taxes are ignored.

Question. Explain the balance sheet concepts accruals and deferrals.

Assets Non-current assets Production equipment Office equipment IT equipment Total non-current assets 560,000 317,500 130,400 1,007,900 Liabilities Equity Share capital Retained earnings Total equity 216,000 2,263,900 2,479,900 Current assets Raw materials Cash Total current assets 546,000 1,126,000 1,672,000 Debt obligation Short-term component Long-term component Total debt 40,000 160,000 200,000 Total assets 2,679,900 Total equity & liabilities 2,679,900 *If no opening balance is providing, you may assume it to be zero

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