Balance Sheet and Cookie Creations

Topics: Balance sheet, Generally Accepted Accounting Principles, Liability Pages: 22 (5958 words) Published: February 28, 2013
Continuing Cookie Chronicle
CCC1Natalie Koebel spent much of her childhood learning the art of cookie-making from her grandmother. They passed many happy 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, Natalie 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 Natalie has to somehow include cookies in her business plan. After a series of brainstorming sessions, Natalie settles on the idea of operating a cookie-making school. She will start on a part-time basis and offer her services in people’s homes. 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 (which will probably be more entertainment than education for the participants). Natalie also decides to include children in her target market. The first difficult decision is coming up with the perfect name for her business. In the end, she settles on “Cookie Creations” and then moves on to more important issues. Instructions

(a)What form of business organization—proprietorship, partnership, or corporation— do you recommend that Natalie use for her business? Discuss the benefits and weaknesses of each form and give the reasons for your choice.

(b)Will Natalie need accounting information? If yes, what information will she need and why? How often will she need this information?
(c)Identify specific asset, liability, and equity accounts that Cookie Creations will likely use to record its business transactions.
(d)Should Natalie open a separate bank account for the business? Why or why not? CCC2After researching the different forms of business organization, Natalie Koebel decides to operate “Cookie Creations” as a corporation. She then starts the process of getting the business running. In November 2014, the following activities take place.

Nov.8Natalie cashes her government bonds and receives $520, which she deposits in her personal bank account.
8She opens a bank account under the name “Cookie Creations” and transfers $500 from her personal account to the new account in exchange for ordinary shares.
11Natalie pays $65 to have advertising brochures and posters printed. She plans to distribute these as opportunities arise. (Hint: Use Advertising Expense.)
13She buys baking supplies, such as flour, sugar, butter, and chocolate chips, for $125 cash.
14Natalie starts to gather some baking equipment to take with her when teaching the cookie classes. She has an excellent top-of-the-line food processor and mixer that originally cost her $750. Natalie decides to start using it only in her new business. She estimates that the equipment is currently worth $300. She invests the equipment in the business in exchange for ordinary shares.

16Natalie realizes that her initial cash investment is not enough. Her grandmother lends her $2,000 cash, for which Natalie signs a note payable in the name of the business. Natalie deposits the money in the business bank account. (Hint: The note does not have to be repaid for 24 months. As a result, the notes payable should be reported in the accounts as the last liability and also on the statement of financial position as a non-current liability.)

17She buys more baking equipment for $900 cash.
20She teaches her first class and collects $125 cash.
25Natalie books a second class for December 4 for $150. She receives $30 cash in advance as a down payment.
30Natalie pays $1,320 for a one-year insurance policy that will expire on December 1, 2015.

(a)Prepare journal entries to record the November transactions.
(b)Post the journal entries to general ledger accounts.
(c)Prepare a trial balance...
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