Natalie has been approached by Ken Thornton, a shareholder of The Beanery Coffee Inc. Ken wants to retire and would like to sell his 1,000 shares in The Bearery Coffee, which represents 30% of all shares issued. The Banery is currently operated by Ken's twin daughters, who each own 35% of the common shares. The Beanery not only operates a coffee shop but als roasts and tells beans to retailers, under the name "Rocky Mountain Beanery." The business has been operating for approximately 5 years. In the last 2 years Ken has lost interest and left the day-to-day operations to his daughters. Both daughters at times find the work at the coffee shop overwhelming. They would like to have a third shareholder involved to take over some of the responsibilities of running a small business. Both feel that Natalie and Curtis are entrepreneurial in spirit and that their expertise would be a welcome addition to the business operation. The twins have also said that they plan to operate this business for another 10 years and then retire. Ken has met with Curtis and Natalie to discuss the business operation. All have concluded that there would be many advantages for Cookin & Coffee Creations Inc, to acquire an interest in the Beanery Coffee. One of the major advantages would be volume discounts for purchase of the coffee bean inventory Despite the apparent advantages, however, Natalie and Curtis are still not convinced that they should participate in this business venture. Assume that Cookie a Coffee Creations Inc. buys the shares and in the following year The Beanery Coffee earns $50.000 net income and pays $25,000 in dividends. Prepare the journal entries required under both the cost method and the equity method of accounting for this investment. (It ne entry is required, select "No Entry for the account titles and enter for the amounts Credit account tities are automatically indented when amount is entered. Do not indent manually) Account Tries and Explanation Debit Credit Cost Method: Equity Method (To record equity in tenerys net income) (Te record dividends received) Natalie has been approached by Ken Thornton, a shareholder of The Beanery Coffee Inc. Ken wants to retire and would like to sell his 1,000 shares in The Bearery Coffee, which represents 30% of all shares issued. The Banery is currently operated by Ken's twin daughters, who each own 35% of the common shares. The Beanery not only operates a coffee shop but als roasts and tells beans to retailers, under the name "Rocky Mountain Beanery." The business has been operating for approximately 5 years. In the last 2 years Ken has lost interest and left the day-to-day operations to his daughters. Both daughters at times find the work at the coffee shop overwhelming. They would like to have a third shareholder involved to take over some of the responsibilities of running a small business. Both feel that Natalie and Curtis are entrepreneurial in spirit and that their expertise would be a welcome addition to the business operation. The twins have also said that they plan to operate this business for another 10 years and then retire. Ken has met with Curtis and Natalie to discuss the business operation. All have concluded that there would be many advantages for Cookin & Coffee Creations Inc, to acquire an interest in the Beanery Coffee. One of the major advantages would be volume discounts for purchase of the coffee bean inventory Despite the apparent advantages, however, Natalie and Curtis are still not convinced that they should participate in this business venture. Assume that Cookie a Coffee Creations Inc. buys the shares and in the following year The Beanery Coffee earns $50.000 net income and pays $25,000 in dividends. Prepare the journal entries required under both the cost method and the equity method of accounting for this investment. (It ne entry is required, select "No Entry for the account titles and enter for the amounts Credit account tities are automatically indented when amount is entered. Do not indent manually) Account Tries and Explanation Debit Credit Cost Method: Equity Method (To record equity in tenerys net income) (Te record dividends received)
