Question

CC3 It is the end of November and Natalie has been in touch with her grandmother. Her grandmother asked Natalie how well things went in her first month of business. Natalie, too, would like to know if she has been profitable or not during November. Natalie realizes that in order to determine Cookie Creations' income, she must first make adjustments.

Natalie puts together the following additional information.

• 1. A count reveals that $35 of baking supplies were used during November.
• 2. Natalie estimates that all of her baking equipment will have a useful life of 5 years or 60 months. (Assume Natalie decides to record a full month's worth of depreciation, regardless of when the equipment was obtained by the business.)
• 3. Natalie'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 Natalie's asks her to teach a class at the neighborhood school. Natalie agrees and teaches a group of 35 first-grade students how to make gingerbread cookies. The next day, Natalie 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. Natalie receives a utilities bill for $45. The bill is for utilities consumed by Natalie's business during November and is due December 15.

Instructions

Using the information that you have gathered through Chapter 2, and based on the new information above, do the following.

a. Prepare and post the adjusting journal entries.

b. Prepare an adjusted trial balance.

c. Using the adjusted trial balance, calculate Cookie Creations' net income or net loss for the month of November. Do not prepare an income statement.

t COOKIE CREATIONS Trial Balance // November 30, 2019 Debit Credit Cash $ 245 Supplies 125 Prepaid Insurance 1,320 Equipment 1,200 Unearned Service Revenue $ 30 Notes Payable 2,000 Owner's Capital 800 Service Revenue 125 Advertising Expense 65 $2.955 $2.955

Answer 1

A. {   ADJUSTING JOURNAL ENTRIES  }

DATE	PARTICULARS	DEBIT $	CREDIT $
30.11.2019	Supplies expense a/c Dr.	35
	To supplies a/c		35
	( being supplies expenses incurred )
30.11.2019	Depreciation Exp. a/c Dr.	20
	To Accum.dep- equipment a/c		20
	( being telephone exp.accrued ) { 300+900} / 60 = 20
30.11.2019	Interest Expense a/c Dr.	5
	To Interest Payable a/c    ( being Interest accrued) { 2000 x 6% x 1/12 x 0.5} = 5		5
30.11.2019	Accounts Receivable a/c Dr. To Service Revenue a/c ( being Services performed on account)	300	300

30.11.2019

Utility Expense a/c Dr. To Accounts Payable a/c ( being utility expense accrued )

45

45

B. { ADJUSTED TRIAL BALANCE }

TRIAL BALANCE , for the month ended 30.11.2019

Unadjusted Adjustments Adjusted Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 245 245 300 300 1320 1320 125 35 90 1200 1200 20 20 45 5 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 45 5 30 30 2000 800 2000 800 125 300 425 65 65 35 35 20 5 20 5 45 405 45 2955 2955 405 3325 3325

C. CALCULATING NET INCOME OR NET LOSS OF ' COOKIE CREATION'

' COOKIE CREATION' EARNED NET INCOME OF = $255

SERVICE REVENUE = 425

( LESS) = ADVERTISING EXPENSES 65

SUPPLIES EXPENSES 35

   DEPRECIATION EXP. 20

INTEREST EXPENSES 5

UTILITY EXPENSES 45 (170)

• NET INCOME = {425-170}    255

• { I AM SO GLAD YOU ASKED FOR HELP WHEN YOU NEEDED IT }