Type:
Solution Manual
Resource:
Financial Accounting, Enhanced eText
Edition:
11th Edition
Author(s):
Jerry J. Weygandt Paul D. Kimmel Donald E. Kieso
CC1
(a)
Continuing Case: Cookie Creations Solution
Natalie has a choice between a sole proprietorship, partnership, and a corporation. A partnership is not an option since she is the sole owner of the business. A proprietorship is the easiest to create and operate because there are no formal procedures involved in creating the proprietorship. However, if she operates the business as a proprietorship, she will personally have unlimited liability for the debts of the business. Operating the business as a corporation would limit her liability to her investment in the business. Natalie will, in all likelihood, require the services of a lawyer to incorporate. Costs to incorporate as well as additional ongoing costs to administrate and operate the business as a corporation may be costly. My recommendation is that Natalie choose the corporate form of business organization. If she expands the business after graduation, she can raise additional capital by issuing more stock. In addition, she limits her liability to her investment in the business. If she decides to transfer ownership to another student, she can do so without dissolving the corporation.
. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse this material is available at http://www.wiley.com/go/permissions.
CC1 (Continued) (b) Yes, Natalie will need accounting information to help her operate her business. She will need information on her cash balance on a daily or weekly basis to help her determine if she can pay her bills. She will need to know the cost of her services so she can establish her prices. She will need to know revenue and expenses so she can report her net income for corporate income tax purposes, on an annual basis. If she borrows money, she will need financial statements so lenders can assess the profitability of the business. Natalie would also find financial statements useful to better understand her business and identify any financial issues as early as possible. Monthly financial statements would be best because they are more timely, but they are also more work to prepare. (c)
Assets: Cash, Accounts Receivable, Supplies, Equipment Liabilities: Accounts Payable, Notes Payable Stockholders’ Equity: Common Stock, Retained Earnings, Dividends Revenue: Service Revenue Expenses: Advertising Expense, Supplies Expense, Utilities Expense
(d) Natalie should have a separate bank account. This will make it easier to prepare financial statements for her business. The business is a separate entity from Natalie and must be accounted for separately.
.
(For Instructor Use Only)
CC2
(a)
Continuing Case: Cookie Creations Solution
GENERAL JOURNAL Account Titles and Explanation
Nov.
Debit
J1 Credit
8 No entry required for cashing U.S. Savings Bonds—this is a personal transaction. 8 Cash .......................................................... Common Stock ....................................
500
11 Advertising Expense ............................... Cash .....................................................
65
13 Supplies.................................................... Cash .....................................................
125
14 Equipment ................................................ Common Stock ....................................
300
16 Cash .......................................................... Notes Payable......................................
2,000
17 Equipment ................................................ Cash .....................................................
900
20 Cash .......................................................... Service Revenue .................................
125
25 Cash .......................................................... Unearned Service Revenue ................
30
30 Prepaid Insurance.................................... Cash .....................................................
1,320
500 65 125 300 2,000 900 125 30 1,320
. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse this material is available at http://www.wiley.com/go/permissions.
CC2 (Continued) (b) Cash Date Nov.
Explanation 8 11 13 16 17 20 25 30
Date
Explanation
Nov. 13
Date
Nov. 14 17
.
Debits
J1 J1 J1 J1 J1 J1 J1 J1
500
Explanation
1,320
Credits
Balance
2,000 900 125 30
125
125
1,320
Equipment Ref. Debits J1 J1
300 900
Balance 500 435 310 2,310 1,410 1,535 1,565 245
Prepaid Insurance Ref. Debits Credits J1
Explanation
Credits
65 125
Supplies Ref. Debits J1
Nov. 30
Date
Ref.
Balance 1,320
Credits
Balance 300 1,200
(For Instructor Use Only)
CC2 (Continued) (b) (Continued)
Date
Explanation
Nov. 25
Date
J1
Explanation
Nov. 16
Date Nov.
Notes Payable Ref. Debits J1
Explanation 8 14
Date
Unearned Service Revenue Ref. Debits
Common Stock Ref. Debits J1 J1
Explanation
Service Revenue Ref. Debits
Nov. 20
J1
Date
Advertising Expense Ref. Debits
Nov. 11
.
Explanation
J1
65
Credits
Balance
30
30
Credits
Balance
2,000
2,000
Credits
Balance
500 300
500 800
Credits
Balance
125
125
Credits
Balance 65
(For Instructor Use Only)
CC2 (Continued) (c) COOKIE CREATIONS Trial Balance November 30, 2022
Debit Cash...........................................................................
$ 245
Supplies ....................................................................
125
Prepaid Insurance.....................................................
1,320
Equipment .................................................................
1,200
Unearned Service Revenue......................................
Credit
$
30
Notes Payable ...........................................................
2,000
Common Stock .........................................................
800
Service Revenue .......................................................
125
Advertising Expense ................................................
65
$2,955
$2,955
Note to instructors: Because the notes payable is not due for 24 months, it follows Unearned Revenue in the accounts and the trial balance.
.
(For Instructor Use Only)
CC3
Cookie Creations
(a) Date
GENERAL JOURNAL Account Titles and Explanation
Debit
Nov. 30 Supplies Expense ......................................... Supplies ....................................................
35
30 Depreciation Expense .................................. Accumulated Depreciation— Equipment ............................................ ($1,200 ÷ 60 months)
20
30 Interest Expense ........................................... Interest Payable ........................................ ($2,000 X .06 X 1/12 X .5)
5
30 Accounts Receivable .................................... Service Revenue.......................................
300
30 Utilities Expense ........................................... Accounts Payable ....................................
45
J2 Credit
35
20
5
300 45
. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical , photocopying, recording or otherwise, except as permitted by law. Advice on how to obtain permission to reuse this material is available at http ://www.wiley.com/go/permissions.
CC3 (Continued) (a) (Continued)
Date
Explanation
Nov. 30 Balance
Date
Explanation
Cash Ref.
Debit
✓ Accounts Receivable Ref. Debit J2
Date
Supplies Ref. Debit
Nov. 30 Balance 30
Date
Explanation
Nov. 30 Balance
.
(For Instructor Use Only)
Credit
300
✓ J2 Prepaid Insurance Ref. Debit ✓
Balance 245
Nov. 30
Explanation
Credit
Balance 300
Credit
Balance
35
125 90
Credit
Balance 1,320
CC3 (Continued) (a) (Continued)
Date
Explanation
Accumulated Depreciation—Equipment Explanation Ref. Debit Credit
Balance
J2
Explanation
Nov. 30
Date
Accounts Payable Ref. Debit J2
Explanation
Nov. 30
.
Balance 1,200
Nov. 30
Date
Credit
✓
Nov. 30 Balance
Date
Equipment Ref. Debit
(For Instructor Use Only)
Interest Payable Ref. Debit J2
20
20
Credit
Balance
45
45
Credit
Balance
5
5
CC3 (Continued) (a) (Continued)
Date
Unearned Service Revenue Explanation Ref. Debit
Nov. 30 Balance
Date
Explanation
Nov. 30 Balance
Date
Explanation
Nov. 30 Balance
Date
Explanation
Nov. 30 Balance 30
Date
Explanation
Nov. 30
Date
Nov. 30 Balance
.
✓
(For Instructor Use Only)
Credit
✓
Balance 2,000
Common Stock Ref. Debit
Credit
✓
Balance 800
Service Revenue Ref. Debit ✓ J2 Utilities Expense Ref. Debit
Credit
Balance
300
125 425
Credit
Balance
45
Advertising Expense Ref. Debit ✓
Balance 30
Notes Payable Ref. Debit
J2
Explanation
Credit
45
Credit
Balance 65
CC3 (Continued) (a) (Continued)
Date
Explanation
Nov. 30
Date
J2
Explanation
Nov. 30
Date
Explanation
(For Instructor Use Only)
5
Balance 35
Credit
20
Interest Expense Ref. Debit J2
Credit
35
Depreciation Expense Ref. Debit J2
Nov. 30
.
Supplies Expense Ref. Debit
Balance 20
Credit
Balance 5
CC3 (Continued) (b) COOKIE CREATIONS Adjusted Trial Balance November 30, 2022 Account Cash............................................................................... Accounts Receivable.................................................... Supplies ........................................................................ Prepaid Insurance ........................................................ Equipment ..................................................................... Accumulated Depreciation—Equipment ..................... Accounts Payable ......................................................... Interest Payable ............................................................ Unearned Service Revenue.......................................... Notes Payable ............................................................... Common Stock ............................................................. Service Revenue ........................................................... Utilities Expense ........................................................... Advertising Expense .................................................... Supplies Expense ......................................................... Depreciation Expense .................................................. Interest Expense ........................................................... Totals ...............................................................
.
(For Instructor Use Only)
Debit $ 245 300 90 1,320 1,200
Credit
$
20 45 5 30 2,000 800 425
45 65 35 20 5 $3,325
$3,325
CC3 (Continued) (c) COOKIE CREATIONS Income Statement Month Ended November 30, 2022 Revenues Service revenue............................................................. Expenses Advertising expense ..................................................... Utilities expense ............................................................ Supplies expense .......................................................... Depreciation expense ................................................... Interest expense ............................................................ Net income ...........................................................................
$425 $65 45 35 20 5
170 $255
Yes, Cookie Creations has been profitable in November. It has a profit of $255 which is more than one half of the revenue earned in November.
.
(For Instructor Use Only)
CC3 (Continued) (c) (Continued) [Note: Balance Sheet is not required—shown for information purposes only.] COOKIE CREATIONS Balance Sheet November 30, 2022 Assets Cash ................................................................................. Accounts receivable ....................................................... Supplies........................................................................... Prepaid insurance ........................................................... Equipment ....................................................................... Less: Accumulated depreciation. ................................. Total assets ................................................................
$ 245 300 90 1,320 $1,200 20
1,180 $3,135
Liabilities and Stockholders’ Equity Liabilities Notes payable ............................................................. Accounts payable....................................................... Interest payable .......................................................... Unearned service revenue ......................................... Total liabilities ........................................................ Stockholders’ equity Common stock ........................................................... Retained earnings ...................................................... Total stockholders’ equity .................................... Total liabilities and stockholders’ equity .............
.
(For Instructor Use Only)
$2,000 45 5 30 2,080 $ 800 255 1,055 $3,135