Question

After establishing their company’s fiscal year-end to be October 31, Natalie and Curtis began operating Cookie & Coffee Creations Inc. on November 1, 2018. The company had the following selected transactions during its first fiscal year of operations.

Jan.    1 Issued an additional 800 preferred shares to Natalie’s brother for $4,000 cash.

June. 30 Repurchased 750 shares issued to the lawyer, for $500 cash. The lawyer had decided to retire and wanted to liquidate all of her assets.

Oct.   15 The company had a very successful first year of operations and as a result declared dividends of $28,000, payable November 15, 2019. (Indicate the amounts payable to the preferred stockholders and to the common stockholders.)

Oct.   31 The company earned revenues of $472,500 and incurred expenses of $416,500 (including the $750 legal expense from November 1 but excluding income tax). Record income tax expense, assuming the company has a 20% income tax rate.

Instructions:

(a) Prepare the journal entries to record each of the above transactions.

(b) Prepare all of the closing entries required on October 31, 2019.

(c) Prepare the retained earnings statement for the year ended October 31, 2019.

(d) Prepare the stockholders’ equity section of the balance sheet as of October 31, 2019.

Answer 1