Balance Sheet and Cookie Creations Essay

Published: 2020-04-22 15:24:05
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Category: Balance sheet

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CCC1Natalie Koebel spent much of her childhood learning the art of cookie-making from her grandmother. They passed many happy hours mastering every type of cookie imaginable and later creating new recipes that were both healthy and delicious. Now at the start of her second year in college, Natalie is investigating various possibilities for starting her own business as part of the requirements of the entrepreneurship program in which she is enrolled. A long-time friend insists that Natalie has to somehow include cookies in her business plan. After a series of brainstorming sessions, Natalie settles on the idea of operating a cookie-making school.

She will start on a part-time basis and offer her services in peoples homes. Now that she has started thinking about it, the possibilities seem endless. During the fall, she will concentrate on holiday cookies. She will offer individual lessons and group sessions (which will probably be more entertainment than education for the participants). Natalie also decides to include children in her target market. The first difficult decision is coming up with the perfect name for her business. In the end, she settles on Cookie Creations and then moves on to more important issues.

Instructions

(a)What form of business organization”proprietorship, partnership, or corporation” do you recommend that Natalie use for her business? Discuss the benefits and weaknesses of each form and give the reasons for your choice.

(b)Will Natalie need accounting information? If yes, what information will she need and why? How often will she need this information?
(c)Identify specific asset, liability, and equity accounts that Cookie Creations will likely use to record its business transactions.
(d)Should Natalie open a separate bank account for the business? Why or why not? CCC2After researching the different forms of business organization, Natalie Koebel decides to operate Cookie Creations as a corporation. She then starts the process of getting the business running. In November 2014, the following activities take place.

Nov.8Natalie cashes her government bonds and receives $520, which she deposits in her personal bank account. 8She opens a bank account under the name Cookie Creations and transfers $500 from her personal account to the new account in exchange for ordinary shares.
11Natalie pays $65 to have advertising brochures and posters printed. She plans to distribute these as opportunities arise. (Hint: Use Advertising Expense.)
13She buys baking supplies, such as flour, sugar, butter, and chocolate chips, for $125 cash.
14Natalie starts to gather some baking equipment to take with her when teaching the cookie classes. She has an excellent top-of-the-line food processor and mixer that originally cost her $750. Natalie decides to start using it only in her new business. She estimates that the equipment is currently worth $300. She invests the equipment in the business in exchange for ordinary shares.

16Natalie realizes that her initial cash investment is not enough. Her grandmother lends her $2,000 cash, for which Natalie signs a note payable in the name of the business. Natalie deposits the money in the business bank account. (Hint: The note does not have to be repaid for 24 months. As a result, the notes payable should be reported in the accounts as the last liability and also on the statement of financial position as a non-current liability.)

17She buys more baking equipment for $900 cash.
20She teaches her first class and collects $125 cash.
25Natalie books a second class for December 4 for $150. She receives $30 cash in advance as a down payment.
30Natalie pays $1,320 for a one-year insurance policy that will expire on December 1, 2015.

Instructions
(a)Prepare journal entries to record the November transactions.
(b)Post the journal entries to general ledger accounts.
(c)Prepare a trial balance at November 30.
CCC3It is the end of November and Natalie has been in touch with her
grandmother. Her grandmother asked Natalie how well things went in her first month of business. Natalie, too, would like to know if the company has been profitable or not during November. Natalie realizes that in order to determine Cookie Creations income, she must first make adjustments.

Natalie puts together the following additional information.
1.A count reveals that $35 of baking supplies were used during November.
2.Natalie estimates that all of her baking equipment will have a useful life of 5 years or 60 months and no salvage value. (Assume Natalie decides to record a full months worth of depreciation, regardless of when the equipment was obtained by the business.)

3.Natalies grandmother has decided to charge interest of 6% on the note payable extended on November 16. The loan plus interest is to be repaid in 24 months. (Assume that half a month of interest accrued during November.)

4.On November 30, a friend of Natalies asks her to teach a class at the neighborhood school. Natalie agrees and teaches a group of 35 first-grade students how to make Santa Claus cookies. The next day, Natalie prepares an invoice for $300 and leaves it with the school principal. The principal says that he will pass the invoice along to the head office, and it will be paid sometime in December.

5.Natalie receives a utilities bill for $45. The bill is for utilities consumed by Natalies business during November and is due December 15.

Instructions
Using the information that you have gathered through Chapter 2, and based on the new information above, do the following.
(a)Prepare and post the adjusting journal entries.
(b)Prepare an adjusted trial balance.
(c)Using the adjusted trial balance, calculate Cookie Creations net income or net loss for the month of November. Do not prepare an income statement. CCC4Natalie had a very busy December. At the end of the month, after journalizing and posting the December transactions and adjusting entries, Natalie prepared the following adjusted trial balance.

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