Recall (from Chapter 12) that Natalie had been considering forming a partnership with Katy, a high school

Question:

Recall (from Chapter 12) that Natalie had been considering forming a with Katy, a high school friend. Natalie has concluded that she and Katy are not compatible to operate a business together and Natalie has continued on her own.
Natalie's parents, Janet and Brian Koebel, have been operating Koebel's Family Bakery Ltd., a private corporation, for a number of years. They are very proud of Natalie and the success of Cookie Creations and have decided that it may be time to get Natalie involved with the operation of the family business.
In anticipation of Natalie graduating, and in hopes of spending a little more time away from the bakery, they have discussed with Natalie the possibility of her becoming one of the shareholders of Koebel's Family Bakery Ltd.
In addition, once Natalie has graduated, Natalie would assume the full-time position of administrator. Natalie could continue to provide cookie-making lessons and sell mixers; however, that would be done by Koebel's Family Bakery in future rather than by Natalie's Cookie Creations.
The share capital and the retained earnings of Koebel's Family Bakery Ltd. at August 1, 2013, are as follows: $6 cumulative preferred shares, 10,000 shares authorized, none issued Common shares, unlimited number of shares authorized, 200 shares issued.......................$ 200
Retained earnings............................................................................116,251
Profit before income tax for the year ended July 31, 2014, was $255,823. Th e company has an 18% income tax rate. A cash of $85,000 was declared on July 15, 2014, to common shareholders of record on July 20, 2014, and was paid on July 30, 2014.
Based on the bakery's success, the Koebels would like to issue 10 shares to Natalie for $1,200 per share. Natalie would contribute the fair value of Cookie Creations' assets in exchange for the shares of Koebel's Family Bakery as follows:
_____________________________________Cookie Creations
Cash............................................................$8,050
Accounts receivable..............................................800
Merchandise inventory........................................1,200
Supplies............................................................450
Equipment......................................................1,500
The sale of shares by Koebel's Family Bakery to Natalie is expected to take place on August 1, 2014. Currently,
Janet and Brian each own 100 shares. Assume Koebel's Family Bakery reports using ASPE.
Instructions
(a) Prepare the journal entries required for the cash declared on July 15 and paid on July 30, 2014. Who received the cash and for what amount?
(b) Prepare the statement of retained earnings for the year ended July 31, 2014.
(c) Prepare the shareholders' equity section of the at July 31, 2014.
(d) Assume that Natalie purchases the shares of Koebel's Family Bakery Ltd. on August 1, 2014, in exchange for the fair value of assets held by Cookie Creations. Prepare the journal entries required by Koebel's Family Bakery Ltd.
(e) Determine the number of shares issued and the average cost per common share before and after Natalie purchases the shares of Koebel's Family Bakery. Why is there a significant change in value?
(f) How do you think a value of $1,200 per share was determined when Janet and Brian were attempting to come up with the number of shares to be sold to Natalie? Do you think that the number of shares Natalie received in exchange for the assets of Cookie Creations is fair? Why or why not?
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