Continuing Cookie Chronicle 1
Continuing Cookie Chronicle
(Note: This is a continuation of the Cookie Chronicle from Chapters 1 through 7.)
CCC8 One of Natalie’s friends, Curtis Lesperance, runs a coffee shop where he
sells specialty coffees and prepares and sells muffins and cookies. He is eager to
buy one of Natalie’s fine European mixers, which would enable him to make
larger batches of muffins and cookies. However, Curtis cannot afford to pay for
the mixer for at least 30 days. He asks Natalie if she would be willing to sell him
the mixer on credit.
Natalie comes to you for advice and asks the following questions.
1. “Curtis has provided me with a set of his most recent financial statements.
What calculations should I do with the data from these statements, and
how will the results help me decide if I should extend credit to Curtis?”
2. “Is there an alternative other than extending credit to Curtis for 30 days?”
3. “I am thinking seriously about permitting my customers to use credit cards.
What are some of the advantages and disadvantages of letting my
customers pay by credit card?”
The following transactions occurred in June through August.
June. 1 After much thought, Natalie sells a mixer to Curtis on credit, terms
n/30, for $1,100 (cost of mixer $600).
2 Natalie meets with the bank manager and arranges to get access to a
credit card account. The terms of credit card transactions are 3% of the
sales transactions and a monthly equipment rental charge of $75.
31 Natalie reconciles her bank statement and makes sure the bank has
recorded the correct amounts for the rental of the credit card equipment
and the credit card sales.
31 Curtis calls Natalie. He cannot pay today but hopes to have a check for
her at the end of the week. Natalie prepares the appropriate journal
entry.
Instructions
(a) Answer Natalie’s questions.
(b) Prepare journal entries for the transactions that occurred in June, July, and
August. The company uses a perpetual inventory system.
(a) Answers to Natalie’s questions
1. Calculations you should perform on the statements are:
• Working Capital = Current Assets – Current Liabilities
• Current Ratio = Current Assets ÷ Current Liabilities
2. Other alternatives to extending credit to Curtis include:
• Waiting for 30 days to make the sale
3. The advantages of allowing customers to use credit cards include
making the purchase easier for the customer, potentially
CONTINUING COOKIE CHRONICLE (Continued)
(b)
June 1
Accounts Receivable—Lesperance ………………..
1,100
Sales Revenue ………………………………………..
1,100
Cost of Goods Sold ………………………………………..
Inventory ………………………………………………..
2
No entry
30
Cash ($1,050 + ($900 X 97%)) ………………………….
1,923
Service Charge Expense ($900 X 3%) ……………..
27
Service Revenue ($1,050 + $900) ……………..
1,950
30
Service Charge Expense ………………………………..
75
Cash ………………………………………………………
1,100
Accounts Receivable—Lesperance …………
1,100
July 15
Cash ($1,100 X 97%) ……………………………………….
1,067
Service Charge Expense ($1,100 X 3%) …………..
33
Sales Revenue ………………………………………..
1,100
Cash ($1,200 + ($1,200 X 97%)) ……………………….
Service Charge Expense ($1,200 X 3%) …………..
36
Service Revenue ($1,200 + $1,200) …………….
Service Charge Expense ………………………………..
75
Interest Revenue …………………………………….
5.50
Aug. 10
No entry
31
Cash ………………………………………………………………
1,111.00
Interest Receivable …………………………………
5.50
Interest Revenue …………………………………….
5.50
Notes Receivable ……………………………………