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CHAPTER 16
Cookie Creations
(Note: This is a continuation of the Cookie Creations from Chapters 1 through 15.)
CC16 Natalie has been approached by Ken Thornton, a shareholder of The Beanery
Coffee Inc. Ken wants to retire and would like to sell his 1,000 shares in The Beanery Coffee,
which represents 30% of all shares issued. The Beanery is currently operated by Ken’s twin
daughters, who each own 35% of the common shares. The Beanery not only operates a
coffee shop but also roasts and sells beans to retailers, under the name “Rocky Mountain
Beanery.”
The business has been operating for approximately 5 years. In the last 2 years Ken has
lost interest and left the day-to-day operations to his daughters. Both daughters at times find
the work at the coffee shop overwhelming. They would like to have a third shareholder
involved to take over some of the responsibilities of running a small business. Both feel that
Natalie and Curtis are entrepreneurial in spirit and that their expertise would be a welcome
addition to the business operation. The twins have also said that they plan to operate this
business for another 10 years and then retire.
1. “We are a little concerned about how much influence we would have in the decision-
making process for The Beanery Coffee. Would the amount of influence we have affect
how we would account for this investment?”
2. “Can you think of other advantages of going ahead with this investment?”
Instructions
(a) Answer Natalie and Curtis’s questions.
(b) Assume that Ken wants to sell his 1,000 shares of The Beanery Coffee for $15,000.
Prepare the journal entry required if Cookie & Coffee Creations Inc. buys Ken’s shares.
