Chapter 4

CCC4 Cookie Creations is gearing up for the winter holiday season. During the month of December 2014, the following transactions occur.

Dec. 1 Natalie hires an assistant at an hourly wage of $8 to help with cookie making and some administrative duties.

5 Natalie teaches the class that was booked on November 25. The balance outstanding is received.

8 Cookie Creations receives a check for the amount due from the neighborhood school for the class given on November 30.

9 Cookie Creations receives $750 in advance from the local school board for five classes that the company will give during December and January.

15 Pays the cell phone invoice outstanding at November 30.

16 Issues a check to Natalies brother for the amount owed for the design of the website.

19 Receives a deposit of $60 on a cookie class scheduled for early January.

23 Additional revenue during the month for cookie-making classes amounts to $4,000. (Natalie has not had time to account for each class individually.) $3,000 in cash has been collected and $1,000 is still outstanding. (This is in addition to the December 5 and December 9 transactions.)

23 Additional baking supplies purchased during the month for sugar, flour, and chocolate chips amount to $1,250 cash.

23 Issues a check to Natalies assistant for $800. Her assistant worked approximately 100 hours from the time in which she was hired until December 23.

28 Pays a dividend of $500 to the common shareholder (Natalie).

As of December 31, Cookie Creations year-end, the following adjusting entry data are provided.

1. A count reveals that $45 of brochures and posters were used.

2. Depreciation is recorded on the baking equipment purchased in November. The baking equipment has a useful life of 5 years. Assume that 2 months worth of depreciation is required.

3. Amortization (which is similar to depreciation) is recorded on the website. (Credit the Website account directly for the amount of the amortization.) The website is amortized over a useful life of 2 years and was available for use on December 1.

4. Interest on the note payable is accrued. (Assume that 1.5 months of interest accrued during November and December.) Round to nearest dollar.

5. One months worth of insurance has expired.

6. Natalie is unexpectedly telephoned on December 28 to give a cookie class at the neighborhood community center on December 31. In early January Cookie Creations sends an invoice for $450 to the community center.

7. A count reveals that $1,025 of baking supplies were used.

8. A cell phone invoice is received for $75. The invoice is for services provided during the month of December and is due on January 15.

9. Because the cookie-making class occurred unexpectedly on December 31 and is for such a large group of children, Natalies assistant helps out. Her assistant worked 7 hours at a rate of $8 per hour.

10. An analysis of the unearned revenue account reveals that two of the five classes paid for by the local school board on December 9 still have not been taught by the end of December. The $60 deposit received on December 19 for another class also remains unearned.

Chapter 5

Natalie asks you the following questions.

1. Would you consider these mixers to be inventory? Or, should they be classified as supplies or equipment?

2. Ive learned a little about keeping track of inventory using both the perpetual and the periodic systems of accounting for inventory. Which system do you think is better? Which one would you recommend for the type of inventory that I want to sell?

3. How often do I need to count inventory if I maintain it using the perpetual system? Do I need to count inventory at all?

In the end, Natalie decides to use the perpetual method of accounting for inventory, and the following transactions happen during the month of January.

Jan. 4 She buys five deluxe mixers on account from Kzinski Supply Co. for $2,750, terms n/30.

6 She pays $100 freight on the January 4 purchase.

7 Natalie returns one of the mixers to Kzinski because it was damaged during shipping. Kzinski issues Cookie Creations credit for the cost of the mixer plus $20 for the cost of freight that was paid on January 6 for one mixer.

8 She collects the amount due from the neighborhood community center that was accrued at the end of December 2014.

12 She sells three deluxe mixers on account for $3,300, FOB destination, terms n/30. The mixers cost $570 each (including freight).

13 Natalie pays her cell phone bill previously accrued in the December adjusting journal entries.

14 She pays $75 of delivery charges for the three mixers that were sold on January 12.

14 She buys four deluxe mixers on account from Kzinski Supply Co. for $2,200, terms n/30.

17 Natalie is concerned that there is not enough cash available to pay for all of the mixers purchased. She issues additional common stock for $1,000.

18 She pays $80 freight on the January 14 purchase.

20 She sells two deluxe mixers for $2,200 cash.

28 Natalie issues a check to her assistant. Her assistant worked 20 hours in January and is also paid for amounts owing at December 31, 2014. Recall that Natalies assistant earns $8 an hour.

28 Natalie collects amounts due from customers in the January 12 transaction.

31 She pays Kzinski all amounts due.

31 Cash dividends of $750 are paid.

As of January 31, the following adjusting entry data are available.

1. A count of brochures and posters reveals that none were used in January.

2. A count of baking supplies reveals that none were used in January.

3. Another months worth of depreciation needs to be recorded on the baking equipment bought in November. (Recall that the baking equipment has a useful life of 5 years or 60 months.)

4. One months worth of amortization (write-off) needs to be recorded on the website. (Recall that the website has a useful life of 2 years or 24 months.)

5. An additional months worth of interest on her grandmothers loan needs to be accrued. (The interest rate is 9%.)

6. One months worth of insurance has expired.

7. Natalie receives her cell phone bill, $75. The bill is for services provided in January and is due February 15. (Recall that the cell phone is used only for business purposes.)

8. An analysis of the unearned revenue account reveals that Natalie has not had time to teach any of these lessons this month because she has been so busy selling mixers. As a result there is no change to the unearned revenue account. Natalie hopes to book the outstanding lessons in February.

9. An inventory count of mixers at the end of January reveals that Natalie has three mixers remaining.

Instructions

Using the information that you have gathered and the general ledger accounts that you have prepared through Chapter 4, plus the new information above, do the following.

(a) Answer Natalies questions. Not required.

(b) Prepare and post the January 2015 transactions.

(c) Prepare a trial balance. Not required.

(d) Prepare and post the adjusting journal entries required.

(e) Prepare an adjusted trial balance.

(f) Prepare a multiple-step income statement and retained earnings statement (Not required.) for the month ended January 31, 2015.

(g) Prepare a classified balance sheet as of January 31, 2015.

(c) Totals 12,434

(f) Net income 2,180

(g) Total assets 8,414

What do the journal entries look like here?