Mei-ling Lee spent much of her childhood learning the art of cookie-making from
ID: 2454499 • Letter: M
Question
Mei-ling Lee 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, Mei-ling 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 Mei-ling has to somehow include cookies in her business plan. After a series of brainstorming sessions, Mei-ling 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). Mei-ling also decides to include children in her target market.
After researching the different forms of business organization, Mei-ling Lee decides to operate “Matcha Creations” as a corporation. She then starts the process of getting the business running. In November 2017, the following activities take place.
Nov. 8 Mei-ling sells her investments and receives NT$520, which she deposits in her personal
bank account.
8 She opens a bank account under the name “Matcha Creations” and transfers NT$500
from her personal account to the new account in exchange for common stock.
11 Mei-ling pays NT$65 to have advertising brochures and posters printed. She plans to
distribute these as opportunities arise.
13 She buys baking supplies, such as flour, sugar, butter, and chocolate chips, for NT$125 Cash.
14 Mei-ling 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 NT$750. Mei-ling decides to start using it only in her new business.
She estimates that the equipment is currently worth NT$300. She invests the equipment
in the business in exchange for ordinary shares.
16 Mei-ling realizes that her initial cash investment is not enough. Her grandmother lends
her NT$2,000 cash, for which Mei-ling signs a note payable in the name of the business.
Mei-ling deposits the money in the business bank account. (Hint: The note does not have
to be repaid for 24 months. As a result, the notes payable should be reported in the accounts
as the last liability and also on the statement of financial position as the last liability.)
17 She buys more baking equipment for NT$900 cash.
20 She teaches her first class and collects NT$125 cash.
25 Mei-ling books a second class for December 4 for NT$150. She receives NT$30 cash
in advance as a down payment.
30 Mei-ling pays NT$1,320 for a 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 a trial balance at November 30.
Explanation / Answer
Asumptions: Cash is received from Mei-Ling for payment of Supplies and equipments and the balnce is trated as Loan from Mei-ling Journal Entries Date Particulars Dr Amt. Cr Amt Nov-08 Bank A/c Dr. $500 To. Equity Share Capital A/c $500 (Issue of Common Stock) Nov-11 Advt. A/c Dr. $65 To Bank A/c $65 (Amt. paid for advt. brouchers and leaflets printed) Nov-13 Cash A/c Dr. $125 To Mei-ling A/c $125 (Cash recd from Mei-ling to purchase the supplies) Nov-13 Supplies A/c Dr. $125 To Cash A/c $125 (Purchased supplies in cash paid by his personnal account) Nov-13 Equipments A/c Dr. $300 To. Equity Share Capital A/c $300 (Equity shares issued in exchanged of purchase of Food Processor from Mei-Ling) Nov-16 Cash A/c Dr. $2,000 To Notes Payable A/c $2,000 (Being the cash recd from Me-ling Grandmother's in exchange of 24 months note payable) Nov-16 Bank A/c Dr. $2,000 To Cash A/c $2,000 (Cash deposited in Bank) Nov-17 Cash A/c Dr. $900 To Mei-ling A/c $900 (Cash recd from Mei-ling to purchase the equipments) Nov-17 Equipment A/c Dr. $900 To Cash A/c $900 (Purchased baking equipment) Nov-20 Cash A/c Dr. $125 To Tution Fees A/c $125 (cash recd. From taking first baking class) Nov-25 Cash A/c Dr. $30 To Advance Tution Fees A/c $30 (Cash recd for class to be held on Dec 4) Nov-30 Prepaid Insurance A/c Dr. $1,320 To Bank A/c $1,320 (insurance paid to be expired on Dec-1) Equity Share capital A/c Date Particulars Amount Date Particulars Amount Nov-30 To balance C/f $800 Nov-08 By Bank A/c $500 Nov-13 By Equipment A/c $300 $800 $800 Bank A/c Date Particulars Amount Date Particulars Amount Nov-08 To Equity Share Capital A/c $500 Nov-11 By Advt. A/c $65 Nov-16 To Cash A/c $2,000 Nov-30 By Prepaid Insurnace $1,320 Nov-30 By Balance C/f $1,115 $2,500 $2,500 Advt. A/c Date Particulars Amount Date Particulars Amount Nov-11 To Bank A/c $65 Nov-30 By Balance C/f $65 $65 $65 Supplies A/c Date Particulars Amount Date Particulars Amount Nov-13 To Cash A/c $125 Nov-30 By Balance C/f $125 $125 $125 Equipment A/c Date Particulars Amount Date Particulars Amount Nov-13 To Equity Share Capital A/c $300 Nov-30 By Balance C/f $1,200 Nov-17 To Cash A/c $900 $1,200 $1,200 Cash A/c Date Particulars Amount Date Particulars Amount Nov-13 To Me-Ling A/c $125 Nov-13 To Supplies A/c $125 Nov-16 To Notes Payable A/c $2,000 Nov-16 By bank A/c $2,000 Nov-17 To Me-Ling A/c $900 Nov-17 By Equipments A/c $900 Nov-20 To Tution Fees A/c $125 Nov-25 To Adv. Tution Fees A/c $30 Nov-30 By Balance C/f $155 $3,180 $3,180 Me-Ling A/c Date Particulars Amount Date Particulars Amount Nov-30 To balanec C/f $1,025 Nov-13 By Cash A/c $125 Nov-17 By Cash A/c $900 $1,025 $1,025 Tution Fess A/c Date Particulars Amount Date Particulars Amount Nov-30 To Balance C/f $125 Nov-20 By Cash A/c $125 $125 $125 Advance Tution Fess A/c Date Particulars Amount Date Particulars Amount Nov-30 To Balance C/f $30 Nov-25 By Cash A/c $30 $30 $30 Trial Balance as on Nov-30 Particulars Dr Amount Cr Amount Equity Share capital A/c $800 Bank A/c $1,115 Advt. A/c $65 Supplies A/c $125 Equipment A/c $1,200 Cash A/c $155 Me-Ling A/c $1,025 Prepaid Insurance $1,320 Notes Payable A/c $2,000 Tution fees Recd A/c $125 Advaance Tution fees A/c $30 $3,980 $3,980