Ms. X spent much of her childhood learning the art of cookie-making from her grandmother. They passed many happy hours mastering every type of cookie imaginable and later creating

Ms. X spent much of her childhood learning the art of cookie-making from her grandmother. They passed many happy hours mastering every type of cookie imaginable and later creating new recipes that were both healthy and delicious. Now at the start of her second year in college, Ms. X is investigating various possibilities for starting her own business as part of the requirements of the entrepreneurship program in which she is enrolled. A long-time friend insists that Ms. X has to somehow include cookies in her business plan. After a series of brainstorming sessions, Ms. X settles on the idea of operating a cookie-making school. She will start on a part-time basis and offer her services in people’s homes. Now that she has started thinking about it, the possibilities seem endless. During the fall, she will concentrate on holiday cookies. She will offer individual lessons and group sessions (which will probably be more entertainment than education for the participants). Ms. X also decides to include children in her target market. The first difficult decision is coming up with the perfect name for her business. In the end, she settles on “Cookie Creations” and then moves on to more important issues. After researching the different forms of business organization. Ms. X decides to operate “XYZ Creations” as a proprietorship. She then starts the process of getting the business running. In November 2019, the following activities take place. Nov. 5 Ms. X cashes her Savings Bonds and receives $700, which she deposits in her personal bank account. 7 She opens a bank account under the name “XYZ Creations” and transfers $450 from her personal account to the new account. 10 Ms. X pays $65 for advertising. 13 She buys baking supplies, such as flour, sugar, butter, and chocolate chips, for $150 cash. (Hint: Use Supplies account.) 14 Ms. X 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. Ms. X 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. 15 Ms. X realizes that her initial cash investment is not enough. Her grandmother lends her $1,800 cash, for which Ms. X signs a note payable in the name of the business. Natalie deposits the money in the business bank account. (Hint: The note does not have to be repaid for 24 months. As a result, the note payable should be reported in the accounts as the last liability and also on the balance sheet as the last liability.) 17 She buys more baking equipment for $850 cash. 20 She teaches her first class and collects $125 cash. 24 Ms. X books a second class for December 4 for $150. She receives $30 cash in advance as a down payment. 30 Ms. X pays $1,320 for a one-year insurance policy that will expire on December 1, 2019. It is the end of October and Ms. X has been in touch with her grandmother. Her grandmother asked Ms. X how well things went in her first month of business. Ms. X, too, would like to know if she has been profitable or not during November. Ms. X realizes that in order to determine XYZ Creations’ income, she must first make adjustments. Ms. X puts together the following additional information. 1. A count reveals that $35 of baking supplies were used during November. 2. Ms. X 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. Ms. X’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 Ms. X’s asks her to teach a class at the neighborhood school. Ms. X agrees and teaches a group of 35 first-grade students how to make Santa Claus cookies. The next day, Ms. X 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. Ms. X receives a utility bill for $45. The bill is for utilities consumed by Ms. X’s business during November and is due December 15. Questions: 1. (a) What form of business organization—proprietorship, partnership, or corporation— do you recommend that Ms. X use for her business? Discuss the benefits and weaknesses of each form and give the reasons for your choice. (b) Will Ms. X need accounting information? If yes, what information will she need and why? How often will she need this information? 2. (a) Identify specific asset, liability, and owner’s equity accounts that XYZ Creations will likely use to record its business transactions. (b) Should Ms. X open a separate bank account for the business? Why or why not? 3. (a) Prepare journal entries to record the November transactions. (b) Post the journal entries to general ledger accounts and prepare a trial balance at November 30 4. (a) Using the additional information prepare and post the adjusting journal entries. (b) Prepare an adjusting trial balance and using the adjusted trial balance prepare Closing Entries for the period. (c) Calculate XYZ Creations’ net income or net loss for the month of November by preparing a Worksheet


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