Continuing Cookie Chronicle_CCC5

Continuing Cookie Chronicle1

Continuing Cookie Chronicle

(Note:This is a continuation of the
Cookie Chronicle from Chapters 1 through 4.)

CCC5Because 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 or60
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