After establishing their company’s fiscal year-end to be October 31, Natalie and

Question

After establishing their company’s fiscal year-end to be October 31, Natalie and Curtis began operating Cookie & Coffee Creations Inc. on November 1, 2018. 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, 2019. (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.

1.Prepare all of the closing entries required on October 31, 2019. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

2.Prepare the retained earnings statement for the year ended October 31, 2019

3.Prepare the stockholders’ equity section of the balance sheet as of October 31, 2019. (For preferred stock, common stock and treasury stock enter the account name only and do not provide the descriptive information provided in the question.)

Explanation / Answer

Answer 1. Journal Entry Date Particulars Dr. Amt. Cr. Amt. 31-Oct Income Summary                             Dr.          427,700 To Expenses          416,500 To Income Tax Expenses            11,200 (Record the closing entry for expenses) 31-Oct Revenues                                             Dr.          472,500 To Income Summary          472,500 (Record the closing entry for Income) 31-Oct Income Summary                               Dr.            44,800 To Retained Earnings            44,800 (Record the net income transferred) 31-Oct Retained Earnings                              Dr.            28,000 To Cash Dividends            28,000 (Record the closing entry for dividends declared) Income Statement Revenues          472,500 Less: Expenses          416,500 Net Operating Income            56,000 Less: Income Tax - 20%            11,200 Net Income            44,800 Answer 2. Retained Earnings Statement For the Year Ended Oct 31, 2019 Beginning Balance                     -   Net Income            44,800 Sub-total            44,800 Less: Cash Dividends          (28,000) Ending Balance            16,800 Answer 3. Balance Sheet (Partial) As on Oct 31, 2019 Stockholders' Equity Paid-in Capital Capital Stock Preference Shares              4,000 Common Stock                     -   Total Paid-in Capital            4,000 Retained Earnings          16,800 Total Paid-in Capital & Retained Capital          20,800 Less: Treasury Stock             (500) Total Stockholders' Equity          20,300 Common stock - No Details are given in the question.

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