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, 2021. The company had the following selected transactions during its first fiscal year of operations. The new corporation is authorized to issue 50,000 shares of $1 par common stock and 10,000 shares of no par, $6 cumulative preferred stock.

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, 2022. (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.

Prepare the stockholders’ equity section of the balance sheet as of October 31, 2022.

Answer 1

To find the income tax expense for Cookie & Coffee Creations Inc., multiply the net income before tax by the 20% tax rate. The stockholders' equity section includes common stock, preferred stock, and retained earnings. Further details are required to provide accurate figures for the shares issued and any dividends paid.

Step-by-step explanation:

First, to calculate the income tax expense for Cookie & Coffee Creations Inc., we use the tax rate provided and the earnings before tax:

• Net Income Before Tax = Revenues - Expenses (excluding income tax)
• Net Income Before Tax = $472,500 - $416,500 = $56,000
• Income Tax Expense = Net Income Before Tax x Tax Rate
• Income Tax Expense = $56,000 x 20% = $11,200

The stockholders' equity section of the balance sheet as of October 31, 2022, would reflect the common and preferred stock issued and retained earnings:

• Common Stock ($1 Par Value, 50,000 shares authorized; shares issued and outstanding not specified) = X shares * $1
• Preferred Stock (No Par, $6 Cumulative, 10,000 shares authorized; shares issued and outstanding not specified) = Y shares * $6
• Retained Earnings = Net Income - Dividends (not provided)
• Retained Earnings = ($472,500 - $416,500 - $11,200) - Dividends
• Retained Earnings = $44,800 - Dividends

To calculate the stockholders' equity accurately, more information is needed about the number of shares issued and any dividends.