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CHAPTER 14
Cookie Creations
(Note: This is a continuation of the Cookie Creations from Chapters 1 through 13.)
CC14 After establishing their company’s fiscal year-end to be October 31, Natalie and
Curtis begin operating Cookie & Coffee Creations Inc. on November 1, 2017. On that
date, after the issuance of shares, the paid-in capital section of the company’s balance
sheet is as follows.
Paid-in capital
Preferred stock, $0.50 noncumulative, no par value,
10,000 shares authorized, 2,000 issued $10,000
Common stock, no par value, 100,000 shares
authorized, 25,930 issued 25,930
Cookie & Coffee Creations then has the following selected transactions during its first
year of operations.
Dec. 1 Issues an additional 800 preferred shares to Natalie’s brother for $4,000.
Apr. 30 Declares a semiannual dividend to the preferred stockholders of record on
May 15, payable on June 1.
June 30 Repurchases 750 shares of common stock issued to the lawyer, for $500.
Recall that these were originally issued for $750. The lawyer had decided to
retire and wanted to liquidate all of her assets.
Oct. 31 The company has had a very successful first year of operations. It earned
revenues of $462,500 and incurred operating expenses of $370,000
(including $750 legal fee, but excluding income tax).
31 Records income tax expense. (The company has a 20% income tax rate.)
31 Declares a semiannual dividend to the preferred stockholders of record on
November 15, payable on December 1.
Instructions
(a) Prepare the journal entries to record the above transactions.
(b) Prepare the statement of retained earnings for the year.
