SWEET TREATS PRACTICE SET

Madison Carter spent much of her childhood learning the art of cookie-making from her grandmother.

They spent many enjoyable hours mastering every type of cookie imaginable and later creating new

recipes that were both healthy and delicious. Now at the start of her second year in college, Madison

is investigating various possibilities for starting her own business as part of the requirements of the

entrepreneurship program in which she is enrolled.

A long-time friend insists that Madison has to somehow include cookies in her business plan. After a

series of brainstorming sessions, Madison settles on the idea of operating a cookie-making school

called "Sweet Treats". She will start on a part-time basis and offer her services "in-house". Now that

she has started thinking about it, the possibilities seem endless. During the fall, she will concentrate

on holiday cookies. She will offer individual lessons and group sessions.

8th,

Madison decides to operate Sweet Treats as a sole proprietorship beginning on October

with her

31st.

year end at December

She purchased a new cell phone to use only for business operations.

She also created a checklist to help her remember which elements of the accounting cycle need to be

completed daily, monthly, and yearly.

Daily:

.

(October) Record transactions in the general journal and post to the general ledger.

.

(November & December) Record transactions in the four special journals, as needed -cash

receipts journal, cash payments journal, purchases journal, and sales journal. Use the general

journal to record anything that does not go into the special journals.

.

(November & December) Post transactions into the two subsidiary ledgers, as needed - the

accounts receivable subsidiary ledger and accounts payable subsidiary ledger. Use the

general ledger to post anything that comes directly from the general journal.

Monthly:

.

Journalize and post adjusting entries.

.

Complete worksheet for each month.

.

(November & December) Post special journals totals to the necessary general ledger

accounts.

Yearly:

31st

.

Create financial statements for the year end December

- multi-step income statement,

owner's equity statement, balance sheet, and statement of cash flows.

.

Journalize and post the closing entries.

.

Prepare the post-closing trial balance.

Madison continues to stay in touch with her grandmother during the first few months of operation. She

appreciates that her grandmother has been so supportive of her. Madison has dreams of opening up

a local Sweet Treats shop when she graduates from college. She wants to hire more employees and

start offering more classes.

INSTRUCTIONS

1.

Record the following transactions according to Madison's checklist above. Be sure to read

any new details given prior to each months' transactions.

2.

Prepare necessary worksheets or forms according to Madison's checklist above.

3.

Record all information in the provided spreadsheets. Be sure to include headers, dates,

explanations, and totals when appropriate. Add rows as needed.

4.Follow all recording, journalizing, and posting rules provided in your textbook.

The following transactions occurred during the month of October.

Oct. 8

Madison cashes her U.S. Savings Bonds and receives $740, which she deposits in her

personal bank account.

8

She opens a bank account under the name Sweet Treats and transfers $600 from her

personal account to the new account.

11

Madison pays $75 for advertising. Check 152.

13

She buys baking supplies, such as flour, sugar, butter, and chocolate chips, for $140 cash.

Check 153.

15

Madison purchases a food processor for $300. Check 154.

16

Madison realizes that her initial cash investment is not enough. Her grandmother lends her

$5,000 cash, for which Madison signs a note payable in the name of the business. Madison

deposits the money in the business bank account. The note will be repaid in 24 months at

7.5% interest.

17

She buys more baking equipment for $900 cash. Check 155.

20

She teaches her first class and collects $135 cash.

25

Madison withdraws $100 from the business for personal expenditures. Check 156.

30

Madison pays $1,200 for a one-year insurance policy that will expire on November 1 of the

next year. Check 157.

30

A friend of Madison's asked her to teach a class at the neighborhood school, Newbury

Elementary School. Madison agreed and taught a group of 35 first-grade students how to

make gingerbread cookies. The next day, Madison prepared an invoice for $300 and left it with the school principal. The principal said that he will pass the invoice along to the head

office, and it will be paid sometime in November.

As of October 31, the following adjusting entry data is available.

1.

A count reveals that $45 of baking supplies were used during October.

2.

Madison estimates that her baking equipment depreciates $10 per month.

3.

Madison has decided to accrue the interest each month just to be sure her books correctly

reflect what needs to be repaid. She will accrue a full month's interest in October, since

she wouldn't even be off the ground without her grandma's help.

4.

Madison had a friend assist her with the Newbury Elementary School class. She decides to

hire her friend as an employee. She owes her $45 for the October 30 class, that she will

pay on November 15.

At the beginning of November, Madison decides to expand her business by selling fine European

mixers. The owner of Batter Blender Supply Co. has approached Madison to become the exclusive

distributor of these fine mixers in her state. The current cost of a mixer is $580, and Madison plans to

sell each mixer for $1,200. Each appliance has a serial number and can be easily identified. Madison

uses the perpetual inventory system to account for these fine mixers. She also decides to start using

special journals and subsidiary ledgers to help keep track of her new customers and vendors, sales

and purchases, and cash flows. (Hint: Refer to Chapter 11 to calculate the cost of inventory.)

The following transactions occurred during the month of November.

Nov. 4

Bought five mixers on account from Batter Blender Supply Co. for $ 2,900, terms n/30.

6

Paid $75 freight on the November 4 purchase. Check 158.

9

Bought four mixers on account from Batter Blender Supply Co. for $ 2,320, terms n/30.

10

Madison is concerned that there is not enough cash available to pay for all of the mixers

purchased. She invests an additional $2,000 cash in Sweet Treats.

11

Paid $60 freight on the November 9 purchase. Check 159.

15

Madison issued a check to her assistant for all the help at the elementary school on October

30. (Recall this amount was accrued at the end of October.) Check 160.

20

Paid a $155 cell phone bill (Hint: Use Utilities Expense). Check 161.

21

Paid Batter Blender the amount due from the November 4 purchase. Check 162.

22

Collected $300 from the October 30 transaction with Newbury Elementary School.

23

Three mixers are sold to Peter's Pastries on account for $3,600, terms n/30. Invoice 1011.

(Hint: You must record both the revenue and expense components on all sales

transactions.)

26

Sold three mixers for $3,600 cash.

29

Paid Batter Blender the amount due from the November 9 purchase. Check 163.

30

Paid her assistant for the last two weeks of November in the amount of $960. Check 164

30

Madison withdrew $750 cash for personal use. Check 165.

As of November 30, the following adjusting entry data is available.

1.

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

2.

Another month's worth of depreciation needs to be recorded on the baking equipment

bought in October.

3.

One month's worth of insurance has expired.

4.

Madison records another month of accrued interest on her grandma's loan.