Continuing Cookie Chronicle 1
Continuing Cookie Chronicle
(Note: This is a continuation of the Cookie Chronicle from Chapters 1 through 4.)
CCC5 Because Natalie has had such a successful first few months, she is considering other opportunities
to develop her business. One opportunity is to become the exclusive distributor of a line of fine European
mixers. The current cost of a mixer is approximately $550, and Natalie would sell each one for $1,100.
Natalie comes to you for advice on how to account for these mixers. Each appliance has a serial number
and can be easily identified.
Natalie asks you the following questions.
1. “Would you consider these mixers to be inventory? Or, should they be classified as supplies or
equipment?”
2. “I’ve learned a little about keeping track of inventory using both the perpetual and the periodic
systems of accounting for inventory. Which system do you think is better? Which one would you
recommend for the type of inventory that I want to sell?”
3. “How often do I need to count inventory if I maintain it using the perpetual system? Do I need to
count inventory at all?”
In the end, Natalie decides to use the perpetual method of accounting for inventory, and the following
transactions happen during the month of January.
Jan. 4 She buys five deluxe mixers on account from Kzinski Supply Co. for $2,750, terms n/30.
6 She pays $100 freight on the January 4 purchase.
7 Natalie returns one of the mixers to Kzinski because it was damaged during shipping. Kzinski
issues Cookie Creations credit for the cost of the mixer plus $20 for the cost of freight that was
paid on January 6 for one mixer.
8 She collects the amount due from the neighborhood community center that was accrued at the
end of December 2014.
12 She sells three deluxe mixers on account for $3,300, FOB destination, terms n/30. The mixers
cost $570 each (including freight).
13 Natalie pays her cell phone bill previously accrued in the December adjusting journal entries.
14 She pays $75 of delivery charges for the three mixers that were sold on January 12.
14 She buys four deluxe mixers on account from Kzinski Supply Co. for $2,200, terms n/30.
17 Natalie is concerned that there is not enough cash available to pay for all of the mixers
purchased. She issues additional common stock for $1,000.
18 She pays $80 freight on the January 14 purchase.
20 She sells two deluxe mixers for $2,200 cash.
28 Natalie issues a check to her assistant. Her assistant worked 20 hours in January and is also
paid for amounts owing at December 31, 2014. Recall that Natalie’s assistant earns $8 an
hour.
28 Natalie collects amounts due from customers in the January 12 transaction.
31 She pays Kzinski all amounts due.
31 Cash dividends of $750 are paid.
As of January 31, the following adjusting entry data are available.
1. A count of brochures and posters reveals that none were used in January.
2. A count of baking supplies reveals that none were used in January.
3. Another month’s worth of depreciation needs to be recorded on the baking equipment bought in
November. (Recall that the baking equipment has a useful life of 5 years or 60 months.)
4. One month’s worth of amortization (write–off) needs to be recorded on the website. (Recall that
the website has a useful life of 2 years or 24 months.)
5. An additional month’s worth of interest on her grandmother’s loan needs to be accrued. (The
interest rate is 9%.)
6. One month’s worth of insurance has expired.
7. Natalie receives her cell phone bill, $75. The bill is for services provided in January and is due
February 15. (Recall that the cell phone is used only for business purposes.)
8. An analysis of the unearned revenue account reveals that Natalie has not had time to teach any
of these lessons this month because she has been so busy selling mixers. As a result there is no
change to the unearned revenue account. Natalie hopes to book the outstanding lessons in
February.
9. An inventory count of mixers at the end of January reveals that Natalie has three mixers
remaining.
Instructions
Using the information that you have gathered and the general ledger accounts that you have prepared
through Chapter 4, plus the new information above, do the following.
(a) Answer Natalie’s questions.
(b) Prepare and post the January 2015 transactions.
(c) Prepare a trial balance.
(d) Prepare and post the adjusting journal entries required.
(e) Prepare an adjusted trial balance.
(f) Prepare a multiple-step income statement and retained earnings statement for the month ended
January 31, 2015.
(g) Prepare a classified balance sheet as of January 31, 2015.
(c) Totals 12,434
(f) Net income 2,180
(g) Total assets 8,414
(a) Responses to Natalie’s questions
1. The mixers should be classified as inventory as they are
for
resale.
(b)
General Journal
Date
Account Titles and Explanation
Debit
Credit
Jan. 4
Inventory ……………………………………………
2,750
Accounts Payable …………………………
2,750
6
Inventory ……………………………………………
Cash …………………………………………….
7
Accounts Payable [($2,750 ÷ 5) + $20] ….
Inventory ………………………………………
8
Cash ………………………………………………….
Accounts Receivable …………………….
12
Accounts Receivable ………………………….
3,300
Sales Revenue ……………………………..
3,300
12
Cost of Goods Sold ($570 X 3) …………….
1,710
Inventory ………………………………………
1,710
13
Accounts Payable ………………………………
Cash …………………………………………….
14
Cash …………………………………………….
(b) (Continued)
General Journal
Date
Account Titles and Explanation
Debit
Credit
Jan. 14
Inventory …………………………………………….
2,200
Accounts Payable …………………………
2,200
17
Cash …………………………………………………..
1,000
Common Stock ……………………………..
1,000
18
Inventory …………………………………………….
80
20
Cash …………………………………………………..
2,200
Sales Revenue ………………………………
2,200
20
Cost of Goods Sold ($570 X 2) ……………..
1,140
Inventory ………………………………………
1,140
28
Salaries and Wages Expense (20 X $8) …
160
Salaries and Wages Payable ………………..
56
Cash …………………………………………….
216
28
Cash …………………………………………………..
3,300
Accounts Receivable …………………….
($2,750 – $570 + $2,200) …………………….
Cash …………………………………………….
4,380
31
Dividends ……………………………………………
Cash …………………………………………….
(b) and (d)
Cash
Date
Explanation
Debit
Credit
Balance
Jan. 1
Balance
1,340
6
100
1,240
8
450
1,690
13
1,615
14
1,540
17
2,540
18
2,460
20
4,660
28
4,444
28
7,744
31
3,364
31
2,614
Accounts Receivable
Date
Explanation
Debit
Credit
Balance
Jan. 1
Balance
1,450
1,000
12
28
1,000
Inventory
Date
Explanation
Debit
Credit
Balance
Jan. 4
2,750
2,750
6
7
14
2,200
2,770
18
20
1,710
(b) and (d) (Continued)
Supplies
Date
Explanation
Debit
Credit
Balance
Jan. 1
Balance
400
Prepaid Insurance
Date
Explanation
Debit
Credit
Balance
Jan. 1
Balance
31
Adjusting entry
Equipment
Date
Explanation
Debit
Credit
Balance
Jan. 1
Balance
Accumulated Depreciation—Equipment
Date
Explanation
Debit
Credit
Balance
Jan. 1
Balance
31
Adjusting entry
Website
Date
Explanation
Debit
Credit
Balance
Jan. 1
Balance
575
Adjusting entry
(b) and (d) (Continued)
Accounts Payable
Date
Explanation
Debit
Credit
Balance
Jan. 1
Balance
75
4
2,750
2,825
7
2,255
14
2,200
4,380
31
Adjusting entry
75
Salaries and Wages Payable
Date
Explanation
Debit
Credit
Balance
Jan. 1
Balance
56
Interest Payable
Date
Explanation
Debit
Credit
Balance
Balance
31
Adjusting entry
38
Unearned Service Revenue
Date
Explanation
Debit
Credit
Balance
Jan. 1
Balance
360
Notes Payable
Balance
2,000
(b) and (d) (Continued)
Common Stock
Date
Explanation
Debit
Credit
Balance
Jan. 1
Balance
800
17
1,000
1,800
Retained Earnings
Date
Explanation
Debit
Credit
Balance
Jan. 1
Balance
2,711
Dividends
Date
Explanation
Debit
Credit
Balance
Jan. 31
750
750
Sales Revenue
Date
Explanation
Debit
Credit
Balance
Jan. 12
3,300
20
5,500
Cost of Goods Sold
Date
Explanation
Debit
Credit
Balance
Jan. 12
1,710
1,710
20
1,140
2,850
Salaries and Wages Expense
Date
Explanation
Debit
Credit
Balance
Jan. 28
160
Utilities Expense
Date
Explanation
Debit
Credit
Balance
Jan. 31
Adjusting entry
(b) and (d) (Continued)
Depreciation Expense
Date
Explanation
Debit
Credit
Balance
Jan. 31
Adjusting entry
20
20
Amortization Expense
Date
Explanation
Debit
Credit
Balance
Jan. 31
Adjusting entry
25
25
Insurance Expense
Date
Explanation
Debit
Credit
Balance
Jan. 31
Adjusting entry
Freight-out
Date
Explanation
Debit
Credit
Balance
Jan. 14
75
75
Interest Expense
Date
Explanation
Debit
Credit
Balance
Jan. 31
Adjusting entry
15
15
(c)
COOKIE CREATIONS INC.
Trial Balance
January 31, 2015
Debit
Credit
Cash ……………………………………………………………………………….
$
2,614
Accounts Receivable ……………………………………………………….
1,000
Inventory ……………………………………………………………………….
1,710
Supplies ………………………………………………………………………….
400
Prepaid Insurance …………………………………………………………..
1,100
Equipment ……………………………………………………………………..
1,200
4
0
Website …………………………………………………………………………..
575
Accounts Payable ……………………………………………………………
0
Salaries and Wages Payable …………………………..……………….
0
Interest Payable ……………………………………………………………..
23
Unearned Service Revenue ……………………………………………..
Notes Payable …………………………………………………………………
Common Stock ……………………………………………………………….
Retained Earnings ………………………………………………………….
Dividends ……………………………………………………………………….
750
Sales Revenue …………………………..…………………………………….
Cost of Goods Sold ………………………………………………………….
2,850
Salaries and Wages Expense ……………………………………………
160
Freight-out ……………………………………………………………………..
General Journal
Date
Account Titles and Explanation
Debit
Credit
Jan.
31
Depreciation Expense ……………………………………….
20
Accumulated Depreciation—
Equipment ………………………………………………..
20
31
Amortization Expense ………………………………………
25
Website ………………………………………………………..
25
31
Interest Expense ………………………………………………
15
Interest Payable ……………………………………………
15
31
Insurance Expense……………………………………………
Prepaid Insurance ………………………………………..
31
Utilities Expense ………………………………………………
75
Accounts Payable …………………………………………
75
(e)
COOKIE CREATIONS INC.
Adjusted Trial Balance
January 31, 2015
Debit
Credit
Cash …………………………………………………………………………….
$ 2,614
Accounts Receivable …………………………………………………….
1,000
Inventory ……………………………………………………………………..
1,710
Supplies ……………………………………………………………………….
Prepaid Insurance ………………………………………………………..
1,000
Equipment …………………………………………………………………..
1,200
Accumulated Depreciation—Equipment ………………………
Website ………………………………………………………………………..
Accounts Payable …………………………………………………………
75
Salaries and Wages Payable …………………………………………
Interest Payable ……………………………………………………………
38
Unearned Service Revenue …………………………………………..
360
Notes Payable ………………………………………………………………
2,000
Common Stock …………………………………………………………….
1,800
Retained Earnings………………………………………………………..
2,711
Dividends …………………………………………………………………….
Sales …………………………………………………………………………….
5,500
Cost of Goods Sold ……………………………………………………….
2,850
Salaries and Wages Expense …………………………………………
Utilities Expense …………………………………………………………..
Depreciation Expense …………………………………………………..
Amortization Expense ………………………………………………….
Insurance Expense ……………………………………………………….
Freight-out ……………………………………………………….………….
$12,544
(f)
COOKIE CREATIONS INC.
Income Statement
For the Month Ended January 31, 2015
Sales …………………………………………………………………………..
$5,500
Cost of goods sold ……………………………………………………….
Gross profit ………………………………………………………………..
Salaries and wages expense ………………………………….
Insurance expense …………………………..…………………..
Utilities expense …………………………………………………..
75
Freight-out ………………………………………………………….
75
Amortization expense ………………………………………….
25
Depreciation expense …………………………………………..
Total operating expenses …………………………………………….
Income from operations ……………………………………………..
Other expenses and losses
Interest expense ……………………………………………………..
Net income…………………………………………………………..
$2,180
COOKIE CREATIONS INC.
Retained Earnings Statement
For the Month Ended January 31, 2015
Retained earnings, January 1 ……………………………………..
$2,711
Add: Net income ……………………………………………………..
Less: Dividends …………………………………………………………
Retained earnings, January 31 ……………………………………
$4,141
(g)
COOKIE CREATIONS INC.
Balance Sheet
January 31, 2015
Assets
Current assets
Cash …………………………………………………………………
$2,614
Accounts receivable…………………………………………..
1,000
Inventory ………………………………………………………….
Supplies ……………………………………………………………
Prepaid insurance …………………………………………….
1,000
Total current assets……………………………………..
$6,724
Property, plant, and equipment
Equipment ………………………………………………………..
1,200
Less: Accumulated depr.—equip. …………………….
60
Intangible asset
Website …………………………………………………………….
Total assets ………………………………………………………………
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ……………………………………………..
$ 75
Unearned service revenue ………………………………..
360
Total current liabilities …………………………………….
$ 435
Long-term liabilities
Notes payable …………………………………………………..
2,000
Interest payable ……………………………………………….
38
Total long-term liabilities …………………………………
Total liabilities ………………………………………………………..
Common stock …………………………………………………
Retained earnings …………………………………………….
$8,414