After researching the different forms of business organization, Mariam decides to operate "Cookie Creations" as a corporation. She then starts the process of getting the business running. In November 2014, the following activities take place.
Nov. 8 Mariam cashes her government 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 ordinary shares.
11 Mariam 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 Mariam 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. Mariam 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 ordinary shares.
16 Mariam realizes that her initial cash investment is not enough. Her grandmother lends her $2,000 cash, for which Mariam signs a note payable in the name of the business. Mariam 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 statement of financial position as a non-current liability.)
17 She buys more baking equipment for $900 cash.
20 She teaches her first class and collects $125 cash.
25 Mariam books a second class for December 4 for $150. She receives $30 cash in advance as a down payment.
30 Mariam pays $1,320 for a one-year insurance policy that will expire on December 1, 2015.
It is the end of November and Mariam has been in touch with her grandmother. Her grandmother asked Mariam how well things went in her first month of business. Mariam, too, would like to know if the company has been profitable or not during November. Mariam realizes that in order to determine Cookie Creations' income, she must first make adjustments.
Mariam puts together the following additional information.
1. A count reveals that $35 of baking supplies were used during November.
2. Mariam estimates that all of her baking equipment will have a useful life of 5 years or 60 months and no salvage value. (Assume Mariam decides to record a full month's worth of depreciation, regardless of when the equipment was obtained by the business.)
3. Mariam's grandmother has decided to charge interest of 6% on the note payable extended on November 16. The loan plus interest is to be repaid in 24 months. (Assume that half a month of interest accrued during November.)
4. On November 30, a friend of Mariam's asks her to teach a class at the neighborhood school. Mariam agrees and teaches a group of 35 first-grade students how to make Santa Claus cookies. The next day, Mariam prepares an invoice for $300 and leaves it with the school principal. The principal says that he will pass the invoice along to the head office, and it will be paid sometime in December.
5. Mariam receives a utilities bill for $45. The bill is for utilities consumed by Mariam's business during November and is due December 15.
Instructions
(a) create journal entries to record the November transactions.
(b) Post the journal entries to general ledger accounts.
(c) Prepare a trial balance at November 30.
(d) Prepare and post the adjusting journal entries.
(e) Prepare an adjusted trial balance.
(f) Prepare an income statement and a retained earnings statement for the 2 months ended December 31, 2014, and a classified statement of financial position at December 31, 2014. The note payable has a stated interest rate of 6%, and the principal and interest are due on November 16, 2016.
(g) Mariam has decided that her year-end will be December 31, 2014. Prepare closing entries as of December 31, 2014.
(h) Prepare a post-closing trial balance.