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Chapter 3

Case 1.
Jessica decides to operates “Monster Cookies” as a corporation. She then starts the process of getting the
business running. In November 2017, the following activities take place.

Nov 8 Jessica sell her investments for $520, which she deposits in her personal bank account.
Nov 8 She opens a bank account under the name “Monster Cookies” and transfer $500 from her
personal account to the new account in exchange for ordinary shares.
Nov 11 Jessica pays $65 to have advertising brochures and posters printed. She plans to distribute
these as opportunities arise.
Nov 13 She buys baking supplies, such as flour, sugar, and butter for $125 cash.
Nov 14 Jessica starts to gather some baking equipment to take with her when teaching the cookies
class. She has an excellent top-of-the-line food processor and mixer that originally cost her
$750. Jessica 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.
Nov 16 Jessica realizes that her initial cash investment is not enough. Her grandmother lends her
$2,000 cash, for which Jessica signs a note payable for 2 years in the name of the business.
Jessica deposits the money in the business bank account.
Nov 17 She buys more baking equipment for $900
Nov 20 She teaches her first class and collects $125 cash
Nov 25 Jessica books a second class for December 4 for $150. She receives $30 cash in advance as down
payment.
Nov 30 Jessica pays $1,320 for one-year insurance policy that will expire on December 1, 2018

Instructions
a. Prepare journal entries to record the November transactions.
b. Post the journal entries to general ledger accounts.
c. Prepare the trial balance at November 30.

Case 2.
It is the end of November and Jessica has been in touch with her grandmother. Her grandmother asked
Jessica how well things went in her first month of business. Jessica, too, would like to know if the company
has been profitable or not during November. Jessica realizes that in order to determine Monster Cookies’s
income, she must first make adjustments to the accounts.

Jessica puts together the following additional information.


1. A count reveals that $35 of baking supplies were used during November.
2. Jessica estimates that the depreciation for her baking equipment is $20
3. Jessica’s grandmother has decided to charge interest 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, Jessica teaches a group of first-grades students how to make holiday cookies.
The next day, Jessica prepares an invoice for $300 and leave it with school principal. The principal
says that he will pass the invoice along to the head offices, and it will be paid in December.
5. Jessica receives a utilities bill for $45. The bill is for utilities consumed by Jessica’s business during
November and is due December 15.

Instructions
a. Prepare and post the adjusting journal entries
b. Prepare an adjusted trial balance
c. Using the adjusted trial balance, calculate Monster Cookies’s net income or net loss for the month
of November.
Case 3
Jessica had a very busy December. At the end of the month, after journalizing and posting the December
transactions and adjusting entries, Jessica prepared the following adjusted trial balance.

MONSTER COOKIES
Adjusted Trial Balance
December 31, 2017
Debit Credit
Cash $1,180
Account Receivables 875
Supplies 350
Prepaid Insurance 1,210
Equipment 1,200
Accumulated Depreciation – Equipment $40
Account Payable 75
Salaries and Wages Payable 56
Unearned Service Revenue 300
Notes Payable 2,000
Interest Payable 15
Share Capital-Ordinary 800
Dividends 500
Service Revenue 4,515
Salaries and Wages Expense 1,006
Utilities Expense 125
Advertising Expense 165
Supplies Expense 1,025
Depreciation Expense 40
Insurance Expense 110
Interest Expense 15
$7,801 $7,801

Instructions:
a. Prepare an Income Statement and a Retained Earnings Statement for the 2 months ended
December 31,2017 and a classified Statement of Financial Position at December 31, 2017. The
note payable has a stated interest rate of 6%, and the principal and interest are due on
November 16,2019.
b. Prepare closings entries as of December 31, 2017.
c. Prepare Post-Closing Trial Balance.