Cookie creations case study ii

 

Cookie Creations (Chapter 13) 

This assignment is a continuation of the Cookie Creations  case study. From     the information gathered in the previous chapters, read the  continuation of      the  Cookie Creations case study in Chapter 13 on page 13-32 of  the textbook.     The  case study allows you to apply what you have learned about  corporations     and  stocks from the unit lesson and required unit  resources. 

Natalie’s friend  Curtis Lesperance decides to meet with  Natalie after         hearing that her  discussions about a possible business partnership  with her      friend Katy Peterson  have failed. Natalie had decided that forming a           partnership with Katy, a high school friend, would hurt their friendship.          Natalie had also concluded that she  and Katy were not compatible to operate a     business venture together. 

Because  Natalie has been so successful with Cookie  Creations and Curtis has   been just  as successful with his coffee shop, they both  conclude that they      could benefit  from each other’s business expertise. Curtis  and Natalie next      evaluate the  different types of business organization. Because  of the         advantage of limited  personal liability, they decide to form a  corporation.                 

Curtis has operated his  coffee shop for 2 years. He buys  coffee, muffins,     and cookies from a local  supplier. Natalie’s business consists  of giving        cookie-making classes and  selling fine European mixers. The plan is  for         Natalie to use the premises that  Curtis currently rents to give her           cooking-making classes and demonstrations of  the mixers that she sells.         Natalie  will also hire, train, and supervise staff  to bake the cookies and       muffins  sold  in the coffee shop. By offering her  classes on the premises,       Natalie will  save  on travel time going from one place  to another. Another       advantage is that  the  coffee shop will have one central  location for    selling   the  mixers. 

The current market values of the assets of  both businesses  are listed         below. 

   Curtis’s Coffee Cookie Creations  Cash  $7,130  $12,000   Accounts receivable 100 800  Inventory 450 1,200   Equipment 2,500 1,000* 

*Cookie  Creations decided  not to buy the delivery van  considered  in Unit    II. 

Combining  forces will  also allow Natalie and Curtis to  pool  their resources and buy a few  more  assets to run their new business  venture. 

Curtis  and Natalie then meet  with  a lawyer and form a  corporation on November  1,  2020, called Cookie&   Coffee Creations Inc. The  articles of    incorporation  state that there will be   two classes of shares that  the         corporation is  authorized to issue: common   shares and preferred shares.   They   authorize  100,000 no-par shares of common   stock and 10,000 no-par   shares of   preferred  stock with a $0.50 noncumulative   dividend. 

The assets held by each  of their  sole proprietorships will  be          transferred into the corporation at  current  market value. Curtis will receive    10,180 common shares, and Natalie  will  receive 15,000 common shares in the      corporation. Therefore, the shares  have a  fair value of $1 per  share. 

Natalie  and Curtis are very excited about  this  new  business venture, so     they  have come  to you with the questions below. 

  1. Curtis’s dad and Natalie’s grandmother are interested in investing $5,000 each in the business venture. We are thinking of    issuing     them           preferred           shares. What would be the    advantage of     issuing   them         preferred shares     instead       of    common shares?       
  2. Our lawyer has sent us a bill for $750. When we discussed the bill with  her, she indicated that she would be willing to receive        common       shares     in     our       new corporation instead of cash for        her   services.     We would   be   happy     to   issue     her shares,    but     we are   a bit worried     about   accounting   for   this        transaction.         Can we   do this? If so,     how do we   determine how      many   shares   to       give her?      

Instructions: 

  1. In a Word document, answer the questions posed by Natalie and Curtis                          above. 
  2. In an Excel spreadsheet, prepare the journal entries required on November 1, 2020, the date when Natalie and Curtis transfer the      assets     of       their           respective businesses into Cookie &      Coffee     Creations   Inc.       
  3. Assume that Cookie & Coffee Creations Inc. issues 1,000 $0.50   noncumulative preferred shares to Curtis’s dad and the same    number   to Natalie’s grandmother—in both cases for    $5,000. Also   assume   that     Cookie     &           Coffee Creations    Inc. issues 750   common   shares to     its lawyer.       
  4. Prepare the journal entries for each of these transactions. They all occurred on November 1. Prepare the opening balance sheet for        Cookie & Coffee Creations Inc. as of November 1,    2020,     including   the     journal     entries   in       (b) and (c)    above. 

Provide your responses to   Natalie and  Curtis’s  two  questions in a Word     document, which should be a   minimum of one  page in  length.  Complete the      accounting for items b–d in one   Excel  spreadsheet; you  may use  multiple      tabs to organize your response. In    summary, you will submit  one Word         document containing item a and one Excel    spreadsheet containing  items  b–d.               

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