Question

Final Project Data

On December 1, 2015 John Trap created a new travel agency, Trap Adventures, Inc. providing exclusive adventure trips. The following transactions occurred during December 2015.

NOTE: There are no beginning balances – this is a new company.

Dec 1 John Trap invested $60,000 cash in the company for common stock.
Dec 2 Purchase office equipment for $17,500 cash.
Dec 2 The company rented furnished office space by paying $18,000 cash for the first six months (December 2015 – May 2016) rent.
Dec 3 The company purchased $1,500 of office supplies on account.
Dec 10 The company paid $3,600 cash for the premium on a 12-month insurance policy.
Dec 14 The company paid $10,750 cash for two weeks' salaries earned by employees.
Dec 24 The company collected $54,000 cash on commissions from airlines on tickets obtained for customers.
Dec 28 The company paid $12,125 cash for two weeks' salaries earned by employees.
Dec 29 The company paid $350 cash for minor repairs to the company's computer.
Dec 30 The company paid $450 cash for this month's telephone bill.
Dec 30 Dividends of $3,000 cash were paid.

Adjustment Data:
• One month's insurance coverage has expired.
• The company occupied the office space for the month of December.
• At the end of the month, $600 of office supplies are still available.

PART 1: Using the spreadsheet found here and the information above, complete the following:

1. Create journal entries to record the transactions that occurred during the month of December.
2. Prepare an unadjusted trial balance.
3. Create adjusting journal entries at the end of the year, December 31 based on the adjustment data.
4. Prepare an adjusted trial balance.
5. Prepare an income statement, statement of stockholders’ equity, and classified balance sheet.
6. Create closing journal entries to close all temporary accounts.
7. Prepare post-closing trial balance.

PART 2: Answer two of the questions below in 1-2 fully developed paragraphs. A fully developed paragraph should have a major point with 3-5 support sentences. 1-2 sentences is not acceptable or does not discuss the question.

1. Trap Adventures, Inc. is looking for an accountant. In your own words, explain to Trap’s hiring team the role of accountant and accounting within business.
      a. Provide examples of the expectations of the accountant.

2. Discuss the financial position of Trap Adventures, Inc. using the following ratios:
      a. Current ratio
      b. Return on equity: For each ratio, provide the calculation and an explanation of the meaning. Is this a positive or negative result for the Trap Adventures, Inc.?

3. Using Trap Adventures, Inc.’s income statement, evaluate the operations for the month of December. Complete a common-size income statement using sales as the base number.
      a. What is the largest percentage?
      b. What is the smallest percentage?
      c. What recommendations could be made to increase Trap’s net income?

4. Currently, Trap Adventures, Inc. does not own any loans or bank notes (long-term liabilities). What would happen if Trap decides to obtain a bank loan for $25,000 to fund daily operations?
      a. How would this transaction impact the financial statements – which accounts would be affected?
      b. What is the debt to equity ratio?
      c. What does the debt to equity ratio represent?

Answer 1

Date	Account	Debit	Credit
Dec 1	Cash	$ 60,000
Dec 1	Common Stock		$ 60,000
Dec 2	Office Equipment	$ 17,500
Dec 2	Cash		$ 17,500
Dec 2	Prepaid Rent	$ 18,000
Dec 2	Cash		$ 18,000
Dec 3	Office Supplies	$    1,500
Dec 3	Accounts Payable		$    1,500
Dec 10	Prepaid Insurance	$    3,600
Dec 10	Cash		$    3,600
Dec 14	Salaries and Wages Expenses	$ 10,750
Dec 14	Cash		$ 10,750
Dec 24	Cash	$ 54,000
Dec 24	Commission Revenue		$ 54,000
Dec 28	Salaries and Wages Expenses	$ 12,125
Dec 28	Cash		$ 12,125
Dec 29	Repair Expense	$       350
Dec 29	Cash		$       350
Dec 30	Telephone Expense	$       450
Dec 30	Cash		$       450
Dec 30	Dividend	$    3,000
Dec 30	Cash		$    3,000
Adjusting Entries:
Dec 30	Insurance Expense	$       300		3600/12
Dec 30	Prepaid Insurance		$       300
Dec 30	Rent Expense	$    3,000		18000/6
Dec 30	Prepaid Rent		$    3,000
Dec 30	Office Supplies Expense	$       900		1500-600
Dec 30	Office Supplies		$       900
Closing Entries:
Dec 30	Commission Revenue	$ 54,000
Dec 30	Income Summary		$ 54,000
	(to close revenue account)
Dec 30	Income Summary	$ 27,875
Dec 30	Repair Expense		$       350
Dec 30	Salaries and Wages Expenses		$ 22,875
Dec 30	Telephone Expense		$       450
Dec 30	Insurance Expense		$       300
Dec 30	Rent Expense		$    3,000
Dec 30	Office Supplies Expense		$       900
	(to close expense account)
Dec 30	Income Summary	$ 26,125
Dec 30	Retained Earning		$ 26,125
	(to close income summary account)
Dec 30	Retained Earning	$    3,000
Dec 30	Dividends		$    3,000
	(to close dividend account)

	Unadjusted Trial Balance		Adjustments		Adjusted Trial Balance		Post Closing Trial
Account	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$           48,225				$ 48,225		$ 48,225
Office Supplies	$             1,500			$          900	$       600		$       600
Prepaid Insurance	$             3,600			$          300	$    3,300		$    3,300
Prepaid Rent	$           18,000			$       3,000	$ 15,000		$ 15,000
Office Equipment	$           17,500				$ 17,500		$ 17,500
Accounts Payable		$    1,500				$    1,500		$    1,500
Common Stock		$ 60,000				$ 60,000		$ 60,000
Retained Earning								$ 23,125
Dividend	$             3,000				$    3,000
Commission Revenue		$ 54,000				$ 54,000
Repair Expense	$                 350				$       350
Salaries and Wages Expenses	$           22,875				$ 22,875
Telephone Expense	$                 450				$       450
Insurance Expense			$           300		$       300
Rent Expense			$        3,000		$    3,000
Office Supplies Expense			$           900		$       900
Total	$         115,500	$115,500	$        4,200	$       4,200	$115,500	$115,500	$ 84,625	$ 84,625