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 20,000 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 $10,000 of common stock to Suzie. Jul. 1 Sell $10,000 of common stock to Tony. Jul. 1 Purchase a one-year insurance policy for $4,800 ($400 per month) to cover injuries to participants during outdoor clinics. Jul. 2 Pay legal fees of $1,500 associated with incorporation. Jul. 4 Purchase office supplies of $1,800 on account. Jul. 7 Pay for advertising of $300 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $50 on the day of the clinic. Jul. 8 Purchase 10 mountain bikes, paying $12,000 cash. Jul. 15 On the day of the clinic, Great Adventures receives cash of $2,000 from 40 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 $2,300. Jul. 24 Pay $700 to a local radio station for advertising to appear immediately. A kayaking clinic will be held on August 10, and attendees can pay $100 in advance or $150 on the day of the clinic. Jul. 30 Great Adventures receives cash of $4,000 in advance from 40 kayakers for the upcoming kayak clinic.

Answer 1

Solution

Great Adventures

Closing entries –

Date	Account Titles	Debit	Credit
Dec-31	Income Summary	35,750
	Advertising expense		1,000
	Depreciation expesne		8,000
	Income tax expense		14,000
	insuracne expense		2,400
	interest expense		750
	legal fees expense		1,500
	Miscellaneous expense		1,200
	Rent expense		800
	salaries expense		2,000
	supplies expense (office)		1,500
	Supplies expense (racing)		2,600
	(to close all expenses accounts)
Dec-31	Service Revenue (Clinic)	$56,900
	Service Revenue (Racing)	$20,000
	Income Summary		$76,900
	(To close revenue accounts to income summary)
Dec-31	Income Summary	$21,150
	Retained Earnings		$21,150
	(To close net profit to retained earnings)

insurance expense = 4,800 x 6/12= 2,400
rent expense	2,400 x 4/12 = 800

Supplies expense (office) = 1,800 – 300 = 1,500

Supplies expense (racing) = 2,800 – 200 = 2,600

Service revenue (clinic) –

Biking clinic   2,000

Biking clinic   2,300

Kayak clinic 7,000 (4,000 + 3,000)

Kayaks clinic 4,000

Kayak clinic 10,500

Rock climbing clinic 13,200

Orienteering clinic      17,900

Total service revenue (clinic) 56,900