Question

COOKIE CREATIONS

Natalie Koebel spent much of her childhood learning the art of cookie-making from her grandmother. They spent many happy hours mastering every type of cookie imaginable and later devised new recipes that were both healthy and delicious. Now in her second year in college, Natalie started investigating possibilities for starting her own business as part of the entrepreneurship program in which she is enrolled.

A long-time friend insisted that Natalie include cookies in her business plan. After a series of brainstorming sessions, Natalie settled on the idea of operating a cookie-making school. She plans to start on a part-time basis and offer her services in people’s 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 group sessions (which will probably be more entertainment than education) and individual lessons. Natalie also decided to include children in her target market. The first difficult decision was coming up with the perfect name for her business. She settled on “Cookie Creations,” and then moved on to more important issues.

After investigating the different forms of business organization, Natalie Koebel decided to operate her business as a corporation, Cookie Creations Inc., and she began the process of getting her business running.

While at a trade show, Natalie was introduced to Gerry Richards, operations manager of “Biscuits,” a national food retailer. After much discussion, Gerry asked Natalie to consider being Biscuits’ major supplier of oatmeal chocolate chip cookies. He provided Natalie with the most recent copy of the financial statements of Biscuits. He expects that Natalie would need to supply Biscuits’ Watertown warehouse with approximately 1,500 dozen cookies a week. Natalie is to send Biscuits a monthly invoice, and she will be paid approximately 30 days from the date the invoice is received in Biscuits’ Chicago office.

Natalie is thrilled with the offer. However, she had recently read in the newspaper that Biscuits has a reputation for selling cookies and donuts with high amounts of sugar and fat, and as a result, consumer demand for the company’s products has decreased.

In November 2017, after having incorporated Cookie Creations Inc., Natalie began operations. She decided not to pursue the offer to supply cookies to Biscuits. Instead, she will be focusing on offering cooking classes. The following events occur:

Nov. 8

8

8 11 14

15

16

17 18 25

29 30

30 30

Natalie cashes in her U.S. Savings Bonds and receives $520, which she deposits in her personal bank account.
NatalieopensabankaccountforCookieCreationsInc. Nataliepurchases$500ofCookieCreations’commonstock. CookieCreationspurchasespaperandotherofficesuppliesfor$95.(UseSupplies.) CookieCreationspays$125topurchasebakingsupplies,suchasflour,sugar,butter,andchocolate chips. (Use Supplies.) Nataliestartstogathersomebakingequipmenttotakewithherwhenteachingthecookieclasses.She has an excellent top-of-the-line food processor and mixer that originally cost her $550. Natalie decides to start using it only in her new business. She estimates that the equipment is currently worth $300, and she transfers the equipment into the business in exchange for additional common stock. Thecompanyneedsmorecashtosustainitsoperations.Natalie’sgrandmotherlendsthecompany $2,000 cash, in exchange for a two-year, 9% note payable. Interest and the principal are repayable at maturity.

CookieCreationspays$900foradditionalbakingequipment. NatalieschedulesherfirstclassforNovember29.Shewillreceive$100onthedateoftheclass. NataliebooksasecondclassforDecember5for$150.Shereceivesa$60cashdownpayment,in advance.

Natalieteachesherfirstclass,bookedonNovember18,andcollectsthe$100cash. Natalie’sbrotherdevelopsawebsiteforCookieCreationsInc.thatthecompanywilluseforadvertising. He charges the company $600 for his work, payable at the end of December. (Because the website is expected to have a useful life of two years before upgrades are needed, it should be treated as an asset called Website.)
CookieCreationspays$1,200foraone-yearinsurancepolicy.
Natalie teaches a group of elementary school students how to make Santa Claus cookies. At the end of the class, Natalie leaves an invoice for $300 with the school principal. The principal says that he will pass it along to the business office and it will be paid some time in December.

30 Nataliereceivesa$50invoiceforuseofhercellphone.SheusesthecellphoneexclusivelyforCookie Creations Inc. business. The invoice is for services provided in November, and payment is due on December 15.

Instructions for November:

(a) Prepare journal entries to record the November transactions. (b) Post the journal entries to the general ledger accounts.
(c) PrepareatrialbalanceatNovember30,2017.

Chart of Accounts

Cash
Accounts Receivable
Supplies
Prepaid Insurance
Equipment
Accumulated Depreciation—Equipment Website
Accounts Payable
Interest Payable
Salaries and Wages Payable Unearned Service Revenue
Notes Payable
Common Stock
Dividends
Service Revenue
Utilities Expense
Salaries and Wages Expense
Supplies Expense
Depreciation Expense
Amortization Expense
Interest Expense
Insurance Expense

Answer 1