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CHAPTER 5
Cookie Creations
(Note: This is a continuation of the Cookie Creations from Chapters 1 through 4. From the in-
formation gathered in the previous chapters, follow the instructions below using the general
ledger accounts you have already prepared.)
CC5 Because Natalie has had such a successful first few months, she is considering other
opportunities to develop her business. One opportunity is the sale of fine European mixers.
The owner of Kzinski Supply Co. has approached Natalie to become the exclusive distributor
of these fine mixers in her state. The current cost of a mixer is approximately $575, and
Natalie would sell each one for $1,150. 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?”
In the end, Natalie decides to use the perpetual inventory system. The following
transactions happen during the month of January.
Jan. 4 Bought five deluxe mixers on account from Kzinski Supply Co. for $2,875, FOB
shipping point, terms n/30.
6 Paid $100 freight on the January 4 purchase.
7 Returned one of the mixers to Kzinski because it was damaged during shipping.
Kzinski issues Cookie Creations credit for the cost of mixer plus $20 for the cost of
freight that was paid on January 6 for one mixer.
20 Sold two deluxe mixers for $2,300 cash. (Cost of goods sold is $595 per mixer.)
28 Natalie issued a check to her assistant for all the help the assistant has given her
during the month. Her assistant worked 20 hours in January and is also paid the
$56 owed at December 31, 2016. (Natalie’s assistant earns $8 an hour.)
28 Collected the amounts due from customers for the January 12 transaction.
As of January 31, the following adjusting entry data is available.
1. A count of baking supplies reveals that none were used in January.
2. Another month’s worth of depreciation needs to be recorded on the $1,200 of baking
equipment bought in November. (Recall that the baking equipment has a useful life of 5
years or 60 months and no salvage value.)
Instructions
(a) Answer Natalie’s questions.
(b) Prepare and post the January 2017 transactions.
