Question

Tony and Suzie graduate from college in May 2021 and begin developing their new business. They begin by offering clinics for basic outdoor activities such as mountain biking or kayaking. Upon developing a customer base, they’ll hold their first adventure races. These races will involve four-person teams that race from one checkpoint to the next using a combination of kayaking, mountain biking, orienteering, and trail running. In the long run, they plan to sell outdoor gear and develop a ropes course for outdoor enthusiasts.

On July 1, 2021, Tony and Suzie organize their new company as a corporation, Great Adventures Inc. The articles of incorporation state that the corporation will sell 39,000 shares of common stock for $1 each. Each share of stock represents a unit of ownership. Tony and Suzie will act as co-presidents of the company. The following transactions occur from July 1 through December 31.

Jul.		1		Sell $19,500 of common stock to Suzie.
Jul.		1		Sell $19,500 of common stock to Tony.
Jul.		1		Purchase a one-year insurance policy for $3,840 ($320 per month) to cover injuries to participants during outdoor clinics.
Jul.		2		Pay legal fees of $1,100 associated with incorporation.
Jul.		4		Purchase office supplies of $1,900 on account.
Jul.		7		Pay for advertising of $250 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $40 on the day of the clinic.
Jul.		8		Purchase 10 mountain bikes, paying $13,700 cash.
Jul.		15		On the day of the clinic, Great Adventures receives cash of $2,400 from 60 bikers. Tony conducts the mountain biking clinic.
Jul.		22		Because of the success of the first mountain biking clinic, Tony holds another mountain biking clinic and the company receives $2,800.
Jul.		24		Pay $650 to a local radio station for advertising to appear immediately. A kayaking clinic will be held on August 10, and attendees can pay $140 in advance or $190 on the day of the clinic.
Jul.		30		Great Adventures receives cash of $9,800 in advance from 70 kayakers for the upcoming kayak clinic.
Aug.		1		Great Adventures obtains a $41,000 low-interest loan for the company from the city council, which has recently passed an initiative encouraging business development related to outdoor activities. The loan is due in three years, and 6% annual interest is due each year on July 31.
Aug.		4		The company purchases 14 kayaks, paying $15,600 cash.
Aug.		10		Twenty additional kayakers pay $3,800 ($190 each), in addition to the $9,800 that was paid in advance on July 30, on the day of the clinic. Tony conducts the first kayak clinic.
Aug.		17		Tony conducts a second kayak clinic, and the company receives $11,300 cash.
Aug.		24		Office supplies of $1,900 purchased on July 4 are paid in full.
Sep.		1		To provide better storage of mountain bikes and kayaks when not in use, the company rents a storage shed for one year, paying $4,440 ($370 per month) in advance.
Sep.		21		Tony conducts a rock-climbing clinic. The company receives $13,500 cash.
Oct.		17		Tony conducts an orienteering clinic. Participants practice how to understand a topographical map, read an altimeter, use a compass, and orient through heavily wooded areas. The company receives $19,900 cash.
Dec.		1		Tony decides to hold the company’s first adventure race on December 15. Four-person teams will race from checkpoint to checkpoint using a combination of mountain biking, kayaking, orienteering, trail running, and rock-climbing skills. The first team in each category to complete all checkpoints in order wins. The entry fee for each team is $580.
Dec.		5		To help organize and promote the race, Tony hires his college roommate, Victor. Victor will be paid $60 in salary for each team that competes in the race. His salary will be paid after the race.
Dec.		8		The company pays $1,800 to purchase a permit from a state park where the race will be held. The amount is recorded as a miscellaneous expense.
Dec.		12		The company purchases racing supplies for $2,800 on account due in 30 days. Supplies include trophies for the top-finishing teams in each category, promotional shirts, snack foods and drinks for participants, and field markers to prepare the racecourse.
Dec.		15		The company receives $23,200 cash from a total of forty teams, and the race is held.
Dec.		16		The company pays Victor’s salary of $2,400.
Dec.		31		The company pays a dividend of $4,000 ($2,000 to Tony and $2,000 to Suzie).
Dec.		31		Using his personal money, Tony purchases a diamond ring for $4,100. Tony surprises Suzie by proposing that they get married. Suzie accepts and they get married!

The following information relates to year-end adjusting entries as of December 31, 2021.

1. Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $8,000.
2. Six months’ of the one-year insurance policy purchased on July 1 has expired.
3. Four months of the one-year rental agreement purchased on September 1 has expired.
4. Of the $1,900 of office supplies purchased on July 4, $280 remains.
5. Interest expense on the $41,000 loan obtained from the city council on August 1 should be recorded.
6. Of the $2,800 of racing supplies purchased on December 12, $250 remains.
7. Suzie calculates that the company owes $13,100 in income taxes.

1. Post transactions from August 1 through December 31 and adjusting entries on December 31 to T-accounts.

2. Prepare an adjusted trial balance as of December 31, 2021.

3. For the period July 1 to December 31, 2021, prepare an income statement, statement of stockholders’ equity and classified balance sheet.

4. Record closing entries as of December 31, 2021.

5. Post the closing entries of retained earnings to the T-account.

6. Prepare a post-closing trial balance as of December 31, 2021.

Answer 1

2.

Great Adventures Adjusted Trial Balance December 31, 2021
Account Titles	Debit	Credit
	$	$
Cash	117,020
Office Supplies	280
Racing Supplies	250
Prepaid Insurance	1,920
Prepaid Rent	2,960
Equipment: Bikes	13,700
Equipment: Kayaks	15,600
Accumulated Depreciation		8,000
Accounts Payable		2,800
Income Taxes Payable		13,100
Interest Payable		1,025
Loan Payable		41,000
Common Stock		39,000
Dividends	4,000
Revenue: Clinic		63,500
Revenue: Racing		23,200
Salaries Expense	2,400
Racing Supplies Expense	2,550
Office Supplies Expense	1,620
Advertising Expense	900
Legal Fees Expense	1,100
Insurance Expense	1,920
Rent Expense	1,480
Depreciation Expense	8,000
Miscellaneous Expense	1,800
Interest Expense	1,025
Income Tax Expense	13,100
Totals	$ 191,625	$ 191,625

3. a.

Great Adventures Income Statement For the period ending December, 2021
Revenues
Revenues: Clinic	$ 63,500
Revenues: Racing	23,200
Total Revenues		$ 86,700
Expenses
Salaries Expense	2,400
Racing Supplies Expense	2,550
Office Supplies Expense	1,620
Advertising Expense	900
Legal Fees Expense	1,100
Insurance Expense	1,920
Rent Expense	1,480
Depreciation Expense	8,000
Miscellaneous Expense	1,800
Interest Expense	1,025
Income Tax Expense	13,100
Total Expenses		35,895
Net Income		$ 50,805

b.

Great Adventures Statement of Retained Earnings For the period ended December 31, 2021
Balance, beginning	$ 0
Net Income	50,805
Dividends	(4,000)
Balance, ending	$ 46,805

c.

Great Adventures Balance Sheet December 31, 2021
Assets
Current Assets
Cash	$ 117,020
Office Supplies	280
Racing Supplies	250
Prepaid Insurance	1,920
Prepaid Rent	2,960
Total Current Assets		$ 122,430
Property Plant and Equipment
Equipment: Bikes	13,700
Equipment: Kayaks	15,600
Accumulated Depreciation	(8,000)
Property Plant and Equipment, net		21,300
Total Assets		$ 143,730
Liabilities and Stockholders Equity
Current Liabilities
Accounts Payable	2,800
Income Taxes Payable	13,100
Interest Payable	1,025
Total Current Liabilities		16,925
Long Term Liabilities
Loan Payable		41,000
Total Liabilities		57,925
Stockholders Equity
Common Stock	39,000
Retained Earnings	46,805
Total Stockholders Equity		85,805
Total Liabilities and Stockholders Equity		$ 143,730