Question

After researching the different forms of business organization, Natalie Koebel decides to operate “Cookie Creations” as a corporation. She then starts the process of getting the business running. In November 2015, the following activities take place.

Nov.   8      Natalie cashes her U.S. Savings Bonds and receives $520, which she deposits in her personal bank account.

           8      She opens a bank account under the name “Cookie Creations” and transfers $500 from her personal account to the new account in exchange for common stock.

        11      Natalie pays $65 to have advertising brochures and posters printed. She plans to distribute these as opportunities arise. (Hint: Use Advertising Expense.)

        13      She buys baking supplies, such as flour, sugar, butter, and chocolate chips, for $125 cash.

        14      Natalie starts to gather some baking equipment to take with her when teaching the cookie classes. She has an excellent top-of-the-line food processor and mixer that originally cost her $750. Natalie decides to start using it only in her new business. She estimates that the equipment is currently worth $300. She invests the equipment in the business in exchange for common stock.

        16      Natalie realizes that her initial cash investment is not enough. Her grandmother lends her $2,000 cash, for which Natalie signs a note payable in the name of the business. Natalie deposits the money in the business bank account. (Hint: The note does not have to be repaid for 24 months. As a result, the notes payable should be reported in the accounts as the last liability and also on the balance sheet as the last liability.)

        17      She buys more baking equipment for $900 cash.

        20      She teaches her first class and collects $125 cash.

        25      Natalie books a second class for December 4 for $150. She receives $30 cash in advance as a down payment.

        30      Natalie pays $1,320 for a one-year insurance policy that will expire on December 1, 2016.

CCC2 (Continued)

Instructions

(a) Prepare journal entries to record the November transactions.

(b) Post the journal entries to general ledger accounts.

(c) Prepare a trial balance at November 30.

Answer 1

Cookie Creations Inc. Journal Enteries Date Particulars 8.11.2019 Cash a/c To Common Stock (Common stock issued for cash) Dr. Debit in $ Credit in $ 500 500 11.11.2019 Advertising Expense a/c Dr. To Cash (Supplies purchased for cash) 14.11.2019 125 Supplies a/c Dr. To Cash (Supplies purchased for cash) 125 300 15.11.2019 Equipment a/c Dr. To Common Stock (Common stock issued for Equip) 300 Dr. 2000 16.11.2019 Cash a/c To Note Payable (Note Payable issued) 2000 900 17.11.2019 Equipment a/c Dr. To Cash (Equipment purchased) 900 30 25.11.2019 Cash a/c Dr. To Unearned Revenue (Cash received in advance from clients) 125 20.11.2019 Cash a/c Dr. To Service Revenue (Service performed for cash) 125 1320 30.11.2019 Prepaid Insurance a/c Dr. To Cash (Annual insuarnce paid in advance) 1320

Debit in $ Credit in $ Adjusting Enteries Date Particulars 30.11.2019 Supplies Expense a/c To Supplies (Supplies expensed) Dr. 35 35 20 20 30.11.2019 Depreciation Expense a/c Dr. To Accum. Depre - Equip. (Telephone expense accrued) (300 + 900) / 60 30.11.2019 Interest Expense a/c Dr. To Interest Payable (Interest accrued) 2000 x 6% x 1/12 x 0.5 300 30.11.2019 Accounts Receivable a/c Dr. To Service Revenue (Services performed on account) 300 30.11.2019 Utility Expense a/c Dr. To Accounts Payable (Utility expense accrued)

Trial Balance For the month ending 30.11.2019 Unadjusted Adjustments Adjusted Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 245 245 300 1320 1320 125 1200 1200 300 90 Particulars Cash Accounts Receivable Prepaid Insurance Supplies Equipment Accum. Depre - Equip. Accounts Payable Interest Payable Unearned Revenue Note Payable Common Stock Service Revenue Advertising Expense Supplies Expense Depreciation Expense Interest Expense Utility Expense Totals 30 30 2000 800 125 2000 800 425 300 65 29552955 405 405 3325 3325

Unearned Revenue Cash 30 30 Common Stock Note Payable Unearned Revenue Service Revenue Cash 500 Advertising Expense 2000 Supplies 30 Equipment 125 Prepaid Insurance Bal 2655 30 125 900 1320 245 2655 2000 Note Payable Cash 2000 2000 Bal Accounts Receivable 2000 Service Revenue 300 300 Bal 300 300 Common Stock Cash 800 Equipment 800 Bal 500 300 800 Cash Supplies 125 Supplies Expense Bal 125 125 Service Revenue Cash 425 Accounts Receivable 425 Bal 125 300 425 Cash Prepaid Insurance 1320 Bal 1320 1320 1320 Advertising Expense Cash 65/ Bal 65 65

Interest Payable Interest Expense Common Stock Cash Equipment 300 900 Bal 1200 1200 1200 Supplies Expense Accum. Depre - Equip. Depreciation Expense 20 Supplies Bal 20 Bal Accounts Payable Utility Expense Depreciation Expense Accum. Depre - Eq 20 Bal Bal 20 རྣ5 20 Interest Expense Utility Expense 45 Interest Payable Accounts Payable Bal Bal 45

425 Statement of Income For the month ending 30.11.2019 Service Revenue Less: Advertising Expense Supplies Expense Depreciation Expense Interest Expense Utility Expense Net Income 170 255