CHAPTER 9

Cookie Creations

(Note:This is a continuation of the Cookie Creations from Chapters 1 through 8.)

CC9 One of Natalies friends, Curtis Lesperance, runs a coffee shop where he sells

specialty coffees and prepares and sells muffins and cookies. He is eager to buy one of

Natalies fine European mixers, which would enable him to make larger batches of

muffins and cookies. However, Curtis cannot afford to pay for the mixer for at least 30

days. He asks Natalie if she would be willing to sell him the mixer on credit.

Natalie comes to you for advice. She asks the following questions.

1.Curtis has given me a set of his most recent financial statements. What calculations

should I do with the data from these statements, and what questions should I ask

him after I have analyzed the statements? How will this information help me decide if

I should extend credit to Curtis?

2.Is there an alternative other than extending credit to Curtis for 30 days?

3.I am thinking seriously about being able to have my customers use credit cards.

What are some of the advantages and disadvantages of letting my customers pay by

credit card?

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

gingerbread 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.

The following transactions occurred in June through August 2020.

June 1 After much thought, Natalie sells a mixer to Curtis on credit, terms n/30, for

$1,150 (cost of mixer $620).

30 Curtis calls Natalie. He is unable to pay the amount outstanding for another

month, so he signs a one-month, 8.25% note receivable.

July. 31 Curtis calls Natalie. He indicates that he is unable to pay today but hopes to

have a check for her at the end of the week. Natalie prepares the journal

entry to record the dishonor of the note. She assumes she will be paid within

a week.

Aug 7 Natalie receives a check from Curtis in payment of his balance owed.

Instructions

(a) Answer Natalies questions.

(b) Prepare journal entries for the transactions that occurred in June, July, and August.

(The company uses a perpetual inventory system). Round to nearest dollar.