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Continuing Cookie Chronicle 1
Continuing Cookie Chronicle
(Note: This is a continuation of the Cookie Chronicle from Chapters 1 through 7.)
CCC8 One of Natalie’s friends, Curtis Lesperance, runs a coffee shop where he sells specialty
coffees and prepares and sells muffins and cookies. He is eager to buy one of
Natalie’s fine European mixers, which would enable him to make larger batches of muffins
and cookies. However, Curtis cannot afford to pay for the mixer for at least 30 days. He
asks Natalie if she would be willing to sell him the mixer on credit.
Natalie comes to you for advice and asks the following questions.
1. “Curtis has provided me with a set of his most recent financial statements. What calculations
should I do with the data from these statements, and what questions should
I ask him after I have analyzed the statements? How will this information help me decide
if I should extend credit to Curtis?”
2. “Is there an alternative other than extending credit to Curtis for 30 days?”
3. “I am thinking seriously about permitting my customers to use credit cards. What
are some of the advantages and disadvantages of letting my customers pay by credit
The following transactions occurred in June through August.
June 1 After much thought, Natalie sells a mixer to Curtis on credit, terms
n/30, for $1,125 (cost of mixer $620).
2 Natalie meets with the bank manager and arranges to get access to a
credit card account. The terms of credit card transactions are 3% of
the sales transactions and a monthly equipment rental charge of
30 Natalie teaches 12 classes in June. Seven classes were paid for in cash,
$1,050; the other five classes were paid for by credit card, $750.
30 Natalie receives and reconciles her bank statement. She makes sure
that the bank has correctly processed the monthly $75 charge for the
rental of the credit card equipment and the 3% fee on the credit card
30 Curtis calls Natalie. He is unable to pay the amount outstanding
for another month, so he signs a one-month, 8% note receivable.
July 15 Natalie sells a mixer to a friend of Curtis's. The friend pays $1,125 for
the mixer by credit card (cost of mixer $620).
30 Natalie teaches 15 classes in July. Eight classes are paid for in cash,
$1,200; seven classes are paid for by credit card, $1,050.
31 Natalie reconciles her bank statement and makes sure the bank has
recorded the correct amounts for the rental of the credit card equipment
and the credit card sales.
31 Curtis calls Natalie. He cannot pay today but hopes to have a check for
her at the end of the week. Natalie prepares the appropriate journal
Aug. 10 Curtis calls again and promises to pay at the end of August, including
interest for 2 months.
31 Natalie receives a check from Curtis in payment of his balance plus
(a) Answer Natalie’s questions.
(b) Prepare journal entries for the transactions that occurred in June, July, and August.
The company uses a perpetual inventory system.