Reference no: EM132703272

Question - Madison Carter spent much of her childhood learning the art of cookie-making from her grandmother. They spent many enjoyable 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, Madison 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 Madison has to somehow include cookies in her business plan. After a series of brainstorming sessions, Madison settles on the idea of operating a cookie-making school called "Sweet Treats". She will start on a part-time basis and offer her services "in-house". 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.

Madison decides to operate Sweet Treats as a sole proprietorship beginning on October 8th, with her year end at December 31st. She purchased a new cell phone to use only for business operations. She also created a checklist to help her remember which elements of the accounting cycle need to be completed daily, monthly, and yearly.

Daily:

(October) Record transactions in the general journal and post to the general ledger.

(November & December) Record transactions in the four special journals, as needed -cash receipts journal, cash payments journal, purchases journal, and sales journal. Use the general journal to record anything that does not go into the special journals.

The following transactions occurred during the month of October.

Oct. 8 Madison cashes her U.S. Savings Bonds and receives $740, which she deposits in her personal bank account.

Oct. 8 She opens a bank account under the name Sweet Treats and transfers $600 from her personal account to the new account.

Oct. 11 Madison pays $75 for advertising. Check 152.

Oct. 13 She buys baking supplies, such as flour, sugar, butter, and chocolate chips, for $140 cash. Check 153.

Oct. 15 Madison purchases a food processor for $300. Check 154.

Oct. 16 Madison realizes that her initial cash investment is not enough. Her grandmother lends her $5,000 cash, for which Madison signs a note payable in the name of the business. Madison deposits the money in the business bank account. The note will be repaid in 24 months at 7.5% interest.

Oct. 17 She buys more baking equipment for $900 cash. Check 155.

Oct. 20 She teaches her first class and collects $135 cash.

Oct. 25 Madison withdraws $100 from the business for personal expenditures. Check 156.

Oct. 30 Madison pays $1,200 for a one-year insurance policy that will expire on November 1 of the next year. Check 157.

Oct. 30 A friend of Madison's asked her to teach a class at the neighborhood school, Newbury Elementary School. Madison agreed and taught a group of 35 first-grade students how to make gingerbread cookies. The next day, Madison prepared an invoice for $300 and left it with the school principal. The principal said that he will pass the invoice along to the head office, and it will be paid sometime in November.

As of October 31, the following adjusting entry data is available.

1. A count reveals that $45 of baking supplies were used during October.

2. Madison estimates that her baking equipment depreciates $10 per month.

3. Madison has decided to accrue the interest each month just to be sure her books correctly reflect what needs to be repaid. She will accrue a full month's interest in October, since she wouldn't even be off the ground without her grandma's help.

4. Madison had a friend assist her with the Newbury Elementary School class. She decides to hire her friend as an employee. She owes her $45 for the October 30 class, that she will pay on November 15.