SWEET TREATS PRACTICE SET- Please Help!

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.

Madison decides to operate Sweet Treats as a sole proprietorship beginning on October 8th, with her year end at December 31st. 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 a worksheet for each month.

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

accounts. Yearly:

Create financial statements for the year end December 31st - multi-step income statement, owners equity statement, balance sheet, and statement of cash flows.

Journalize and post the closing entries.

Prepare a 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

Record the following transactions according to Madisons checklist above. Be sure to read any new details given prior to each months transactions.

Prepare any necessary worksheets or forms according to Madisons checklist above.

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

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

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 Madisons 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.

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

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

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 months interest in October, since she wouldnt even be off the ground without her grandmas help.

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 6 9 10

11 15

20 21 22 23

26 29 30 30

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

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

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

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.

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

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.

Paid a $155 cell phone bill (Hint: Use Utilities Expense). Check 161. Paid Batter Blender the amount due from the November 4 purchase. Check 162. Collected $300 from the October 30 transaction with Newbury Elementary School.

Three mixers are sold to Peters 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.)

Sold three mixers for $3,600 cash. Paid Batter Blender the amount due from the November 9 purchase. Check 163. Paid her assistant for the last two weeks of November in the amount of $960. Check 164 Madison withdrew $750 cash for personal use. Check 165.

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

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

Another months worth of depreciation needs to be recorded on the baking equipment bought in October.

One months worth of insurance has expired.

Madison records another month of accrued interest on her grandmas loan.

At the beginning of December, Madison finds out that Batter Blender Supply Co. has raised the cost of their mixers to $615 each, so she will only make one more purchase from them this month. She was lucky enough to find comparable mixers at Garcia Co., a local manufacturer, so she has signed a contract to buy mixers from them this month. Garcia Co. also has a $610 cost for each mixer. She still plans to sell them for $ 1,200. Madison is running out of storage space in her small apartment, so she decides to rent a small office space to hold all of her supplies and inventory. Rent is due at the beginning of each month.

The following transactions occurred during the month of December.

Dec. 1

Paid $700 rent for the month of December. Check 166.

2 Purchased three mixers on account from Batter Blender Supply Co. for $1,845, terms n/30.

4 Paid $45 freight for the December 2 purchase. Check 167.

6 Sold three mixers for $3,600 on account to Seafood Shack, invoice 1012, terms n/30.

7 Bought four mixers on account from Garcia Co. for $2,440, terms n/30.

8 Collected the amount due from Peters Pastries for the November 23 transaction.

9 Returned one of the mixers purchased on Dec 7th because it was damaged during shipping.

Garcia Co. issues Sweet Treats credit for the cost of the mixer.

10 Paid Batter Blender the amount due for the December 2 purchase. Check 168.

12 Bought three mixers on account from Garcia Co. for $1,830, terms n/30.

13 Paid $45 freight for the December 7 purchase. Check 169.

16 Three mixers are sold on account for $3,600 to the Chop House, invoice 1013, terms n/30.

16 One mixer is sold to a new customer, Bagel Depot, on account for $1,200, invoice 1014, terms n/30.

18 Paid a $75 cell phone bill for December. Check 170.

19 Paid $45 freight for items received on the December 12 purchase. Check 171.

20 Taught a 3hr cupcake making class at Winslow Sweets for $150 per hour. Winslow Sweets paid in full at the end of the class.

20 Paid Garcia Co. the amount due for the December 7 purchase. Check 172.

20 Collected the amount due from Chop House for the December 16 transaction.

21 Purchased baking supplies for $350 cash. Check 173.

23 Issued a check to Madisons assistant for $960 for the first two weeks in December. Check 174.

23 Two mixers are sold on account for $2,400 to the Chop House, invoice 1015, terms n/30.

24 Taught a 2hr holiday cookie workshop at Young Souls, the local senior center. Madison offered her workshop at a discounted price of $50 per hour. She left invoice 1016 with the director of Young Souls after the workshop.

26 Collected the amount due from Bagel Depot for the December 16 transaction.

27 Madison withdrew $1,200 cash for personal use. Check 175.

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

Accrued utilities total $340 for the current month.

Another months worth of depreciation needs to be recorded on the baking equipment.

A count reveals that $135 of baking supplies are remaining in the supply room.

Another months worth of insurance has expired.

Madison owes her assistant $960 for the last two weeks of December, but will not pay it until January 2.

Madison records another month of accrued interest on her grandmas loan.

At year end, Madison completes all the financial statements and closes out the year. Madison is making huge strides in her entrepreneurship program by starting up Sweet Treats and she cannot thank her friends and family enough for all their support. In the new year, Madison intends on continuing to sell mixers and provide classes on multiple baking needs. She is even considering attending culinary classes at CNM to learn new things she can incorporate into her business.