Is this right? Continuing Cookie Chronicle 1 Continuing Cookie Chronicle Part 2
ID: 2574078 • Letter: I
Question
Is this right?
Continuing Cookie Chronicle 1
Continuing Cookie Chronicle
Part 2 After establishing their company’s fiscal year-end to be October 31, Natalie and Curtis began operating Cookie & Coffee Creations Inc. on November 1, 2015. The company had the following selected transactions during its first fiscal year of operations.
Jan. 1 Issued an additional 800 preferred shares to Natalie’s brother for $4,000 cash.
June. 30 Repurchased 750 shares issued to the lawyer, for $500 cash. The lawyer had decided to retire and wanted to liquidate all of her assets.
Oct. 15 The company had a very successful first year of operations and as a result declared dividends of $28,000, payable November 15, 2016. (Indicate the amounts payable to the preferred stockholders and to the common stockholders.)
Oct. 31 The company earned revenues of $472,500 and incurred expenses of $416,500 (including the $750 legal expense from November 1 but excluding income tax). Record income tax expense, assuming the company has a 20% income tax rate.
Instructions
(a) Prepare the journal entries to record each of the above transactions.
Date
Account Titles
Debit
Credit
Jan. 1
Cash
4,000
Preferred stock
4,000
June. 30
Treasury Stock
500
Cash
500
Oct. 15
Cash Dividends
28,000
Dividends Payable
28,000
Oct. 31
Income Tax Expense
11,200
Income Tax Payable
11,200
(b) Prepare all of the closing entries required on October 31, 2016.
Date
Account Titles
Debit
Credit
Oct. 31
Sales Revenue
472,500.00
Income Summary
472,500.00
Oct. 31
Income Summary
750
Legal Expenses
750
Oct. 31
Income Summary
28,000
Dividend Expense
28.000
Oct. 31
Income Summary
11,200
Income Tax Expenses
11,200
Oct. 31
Income Summary
16,800
Retained Earrnings
16,800
Date
Account Titles
Debit
Credit
Jan. 1
Cash
4,000
Preferred stock
4,000
June. 30
Treasury Stock
500
Cash
500
Oct. 15
Cash Dividends
28,000
Dividends Payable
28,000
Oct. 31
Income Tax Expense
11,200
Income Tax Payable
11,200
Explanation / Answer
A. Journal entries :---
1. Cash 4000
To Preference share capital 4000
2. Share capital 500
To cash 500
3. Retained earning 28000
To Dividend payable 28000
(NOTE : Dividend payable is never part of income statement. Dividend is part to income appropriation, it is not a tax deductiable expense. )
4. Tax expense 11200
To Tax payable 11200
(NOTE : Tax payable will be :
Total revenue = 472500
Total Expenditure (including legal expense of 750 ) = 416500
Income chargeable to tax = 56000
Tax rate = 20%
Tax payable = 11200)
Closing entries :---
1. Sales revenue 472500
To income summary 425000
2. Income summary 416500
To business expenditure 416500
3. Income Summary 11200
To Tax expense 11200
4. Income summary 44800
To retained earning 44800
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