Question

Question 1 Natalie's friend, Curtis Lesperance, decides to meet with Natalie after hearing that her discussions about a possible business partnership with her friend Katy Peterson have failed. (Natalie had decided that forming a partnership with Katy, a high school friend, would hurt their friendship. Natalie had also concluded that she and Katy were not compatible to operate a business venture together.) Because Natalie has been so successful with Continuing Cookie Chronicle and Curtis has been just as successful with his coffee shop, they both conclude that they could benefit from each other's business expertise. Curtis and Natalie next evaluate the different types of business organization. Because of the advantage of limited personal liability, they decide to form a corporation. Curtis has operated his coffee shop for 2 years. He buys coffee, muffins, and cookies from a local supplier. Natalie's business consists of giving cookie-making classes and selling fine European mixers. The plan is for Natalie to use the premises Curtis currently rents to give her cooking-making classes and demonstrations of the mixers that she sells. Natalie will also hire, train, and supervise staff to bake the cookies and muffins sold in the coffee shop. By offering her classes on the premises, Natalie will save on travel time going from one place to another. Another advantage is that the coffee shop will have one central location for selling the mixers. The current market values of the assets of both businesses are as follows. Cash Accounts receivable Inventory Equipment Curtis's Coffee Continuing Cookie Chronicle $7,130 $12,000 100 800 1,200 2,500 450 1,000* *Cookie Chronicle decided not to buy the delivery van considered in Chapter 10 Combining forces will also allow Natalie and Curtis to pool their resources and buy a few more assets to run their new business venture. Curtis and Natalie then meet with a lawyer and form a corporation on November 1, 2020, called Cookie & Coffee Creations Inc. The articles of incorporation state that there will be two classes of shares that the corporation is authorized to issue: common shares and preferred shares. They authorize 100,000 na-par shares of common stock, and 10,000 no-par shares of preferred stock with a $0.50 noncumulative dividend. The assets held by each of their sole proprietorships will be transferred into the corporation at current market value. Curtis will receive 10,180 common shares, and Natalie will receive 15,000 common shares in the corporation. Therefore, the shares have a fair value of $1 per share. Natalie and Curtis are very excited about this new business venture. They come to you with the following questions:

Answer 1

Date	Account Titles and Explanation	Debit	Credit
Nov. 1	Cash ($7130 + $12000)	19130
	Accounts receivable ($100 + $800)	900
	Inventory ($450 + $1200)	1650
	Equipment ($2500 + $1000)	3500
	Common stock		25180
	(To record common stock issued against assets transferred)

Date	Account Titles and Explanation	Debit	Credit
Nov. 1	Cash	10000
	Preferred stock		10000
	(To record issue of preferred stock)
Nov. 1	Organizational expenses	750
	Common stock		750
	(To record issue of common shares to lawyer)

The common stock issued to lawyers is recorded at its fair value of $1 per share.

COOKIE & COFFEE CREATIONS INC.
Balance Sheet
November 1, 2020
Assets
Current assets
Cash	29130
Accounts receivable	900
Inventory	1650
Total current assets	31680
Property, plant, and equipment
Equipment	3500
Total assets	35180
Stockholder's Equity
Paid-in capital
Preferred stock	10000
Common stock	25930
Total paid-in capital	35930
Retained earnings	-750
Total stockholder's equity	35180