CHAPTER 13
Cookie Creations
(Note: This is a continuation of the Cookie Creations from Chapters 1 through 12.)
CC13 Natalie’s friend, Curtis Lesperance, decides to meet with Natalie after hearing
that her discussions about a possible business partnership with her friend Katy Peterson
have failed. (Natalie had decided that forming a partnership with Katy, a high school
friend, would hurt their friendship. Natalie had also concluded that she and Katy were not
compatible to operate a business venture together.)
Because Natalie has been so successful with Cookie Creations and Curtis has been
just as successful with his coffee shop, they both conclude that they could benefit from
each other’s business expertise. Curtis and Natalie next evaluate the different types of
business organization. Because of the advantage of limited personal liability, they decide
to form a corporation.
The current market values of the assets of both businesses are as follows.
Curtis’s Coffee
Cookie Creations
Cash
$7,130
$12,000
Accounts receivable
100
800
Inventory
Equipment
Combining forces will also allow Natalie and Curtis to pool their resources and buy a
few more assets to run their new business venture.
Curtis and Natalie then meet with a lawyer and form a corporation on November 1,
2017, called Cookie & Coffee Creations Inc. The articles of incorporation state that there
The assets held by each of their sole proprietorships will be transferred into the
corporation at current market value. Curtis will receive 10,180 common shares, and
Natalie will receive 15,000 common shares in the corporation. Therefore, the shares
have a fair value of $1 per share.
Natalie and Curtis are very excited about this new business venture. They come to
you with the following questions:
1. “Curtis’s dad and Natalie’s grandmother are interested in investing $5,000 each in
the business venture. We are thinking of issuing them preferred shares. What would
be the advantage of issuing them preferred shares instead of common shares?”
Instructions
(a) Answer their questions.
(b) Prepare the journal entries required on November 1, 2017, the date when Natalie
and Curtis transfer the assets of their respective businesses into Cookie & Coffee
Creations Inc.
(c) Assume that Cookie & Coffee Creations Inc. issues 1,000 $0.50 noncumulative
preferred shares to Curtis’s dad and the same number to Natalie’s grandmother, in
both cases for $5,000. Also assume that Cookie & Coffee Creations Inc. issues 750