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 $4,080 ($340 per month) to cover injuries to participants during outdoor clinics.
Jul.		2		Pay legal fees of $1,900 associated with incorporation.
Jul.		4		Purchase office supplies of $1,900 on account.
Jul.		7		Pay for advertising of $370 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 $14,900 cash.
Jul.		15		On the day of the clinic, Great Adventures receives cash of $2,000 from 50 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 $930 to a local radio station for advertising to appear immediately. A kayaking clinic will be held on August 10, and attendees can pay $150 in advance or $200 on the day of the clinic.
Jul.		30		Great Adventures receives cash of $9,000 in advance from 60 kayakers for the upcoming kayak clinic.
Aug.		1		Great Adventures obtains a $47,000 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 $18,000 cash.
Aug.		10		Twenty additional kayakers pay $4,000 ($200 each), in addition to the $9,000 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 $11,200 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 $3,720 ($310 per month) in advance.
Sep.		21		Tony conducts a rock-climbing clinic. The company receives $14,500 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 $18,400 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 $560.
Dec.		5		To help organize and promote the race, Tony hires his college roommate, Victor. Victor will be paid $40 in salary for each team that competes in the race. His salary will be paid after the race.
Dec.		8		The company pays $1,700 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 $22,400 cash from a total of forty teams, and the race is held.
Dec.		16		The company pays Victor’s salary of $1,600.
Dec.		31		The company pays a dividend of $3,500 ($1,750 to Tony and $1,750 to Suzie).
Dec.		31		Using his personal money, Tony purchases a diamond ring for $4,400. 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 $6,580.
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, $220 remains.
5. Interest expense on the $47,000 loan obtained from the city council on August 1 should be recorded.
6. Of the $2,800 of racing supplies purchased on December 12, $110 remains.
7. Suzie calculates that the company owes $13,800 in income taxes.

Require

1. Record each of the transactions listed above in the 'General Journal' tab (these are shown as items 1 - 27). Review the 'General Ledger' and the 'Trial Balance' tabs to see the effect of the transactions on the account balances.

2. Record the adjusting entries in the 'General Journal' tab (these are shown as items 28-34).

3. Review the adjusted 'Trial Balance' as of December 31, 2021.

4. Prepare an income statement for the period ended December 31, 2021, in the 'Income Statement' tab.

5. Prepare a statement of stockholder's equity for the period ended December 31, 2021, in the 'Statement of Stockholder's Equity' tab.

6. Prepare a classified balance sheet as of December 31, 2021 in the 'Balance Sheet' tab.

7. Record the closing entries in the 'General Journal' tab (these are shown as items 35-37).

Answer 1

Great Adventures Inc. Journal entries No. Date Accounts 1 1-Jul Cash Common Stock Credit Debit 10,000 10,000 10,000 1-Jul Cash Common Stock 10,000 3 4,080 1-Jul Prepaid Insurance Cash 4,080 4 1,900 2-Jul Legal fees expense Cash 1,900 1,900 4-Jul Supplies (Office) Accounts Payable 1,900 370 7-Jul Advertising expense Cash 370 7 14,900 8-Jul Equipment (Bikes) Cash 14,900 8 2,000 15-Jul Cash Service revenue (Clinic) 2,000 9 2,300 22-Jul Cash Service revenue (Clinic) 2,300 10 930 24-Jul Advertising expense Cash 930 11 9,000 30-Jul Cash Deferred Revenue 9,000 47,000 121-Aug Cash Notes Payable 47,000 13 18,000 4-Aug Equipment (Kayaks) Cash 18,000 14 10-Aug Cash Deferred Revenue Service revenue (Clinic) 4,000 9,000 13,000 15 11,200 17-Aug Cash Service revenue (Clinic) 11,200 16 1,900 24-Aug Accounts Payable Cash 1,900 17 1-Sep Prepaid Rent 3,720 Cash 3,720 18 14,500 21-Sep Cash Service revenue (Clinic) 14,500 19 18,400 17-Oct Cash Service revenue (Clinic) 18,400 20 1-Dec No entry 21 5-Dec No entry 22 1,700 8-Dec Misc expense Cash 1,700 23 2,800 12-Dec Supplies (Racing) Accounts Payable 2,800 24 22,400 15-Dec Cash Service revenue (Racing) 22,400 25 16-Dec Salary expense 1,600 Cash 1,600 26 3,500 31-Dec Dividends Cash 3,500 27 31-Dec No entry

Credit Calculation Adjusting entries No. Date Accounts 28 31-Dec Depreciation expense Accumulated Depreciation Debit 6,580 6,580 29 2,040 -4,080/12*6 31-Dec Insurance expense Prepaid Insurance 2,040 30 1,240 =3,720/12*4 31-Dec Rent expense Prepaid Rent 1,240 31 1,680 =1,900-220 31-Dec Supplies (Office) expense Supplies (Office) 1,680 32 1,175 -47,000*6%*5/12 31-Dec Interest expense Interest Payable 1,175 33 2,690 =2,800-110 31-Dec Supplies (Racing) expense Supplies (Racing) 2,690 34 13,800 31-Dec Income tax expense Income tax payable 13,800

Credit Date Credit Date Credit Date Credit Debit Date Prepaid Insurance 4,080 31-Dec Debit Date Prepaid Rent 3,720 31-Dec Debit Date Supplies (Office) -Jul 1,900 31-Dec 1-Jul 2,040 1 -Sep 1,240 4 1,680 Great Adventures Inc. T Accounts Date Debit Date Cash 1-Jul 10,000 1-Jul 1-Jul 10,000 2-Jul 15-Jul 2,000 7-Jul 22-Jul 2,300 8-Jul 30-Jul 9,000 24-Jul 1-Aug 47,000 10-Aug 4,000 24-Aug 17-Aug 11,200 1-Sep 21-Sep 14,500 8-Dec 17-Oct 18,400 16-Dec 15-Dec 22,400 31-Dec 4-Aug 4,080 1,900 370 14,900 930 18,000 1,900 3,720 1,700 1,600 3,500 Bal. Bal. 2,040 Bal. 2,480 Bal. 98,200 Supplies (Racing) 2,800 31-Dec Equipment (Bikes) 14,900 Equipment (Kayaks) 18,000 220 Accum. Depreciation 31-Dec 12-Dec 2,690 8 -Jul 4-Aug 6,580 Bal. Bal. Bal. 6,580 14,900 Deferred Revenue 9,000 30-Jul Accounts Payable 1,900 4-Jul 12-Dec 18,000 Interest Payable 31-Dec Bal. Income taxes payable 31-Dec 24-Aug 1 0-Aug 9,000 1,175 13,800 1,900 2,800 2,800 Bal. 1,175 13,800 Bal. Notes Payable 1-Aug Bal. Dividends 3,500 31-Dec Common Stock 1-Jul 1-Jul Bal. Retained Earnings 35,705 31-Dec 3,500 47,000 31-Dec 83,800 10,000 10,000 31-Dec 31-Dec 3,500 47,000 20,000 Bal. Bal. 44,595 Bal. Service revenue (Racing) 16-Dec 22,400 Advertising expense 370 930 Legal fees expense 1,900 7-Jul 24-Jul 2-Jul Bal. Service revenue (Clinic) 15-Jul 22-Jul 10-Aug 17-Aug 21-Sep 31-Dec 61,400 17-Oct 2,000 2,300 13,000 11,200 14,500 18,400 31-Dec 22,400 31-Dec 1,300 31-Dec 1,900 Bal. Bal. Bal. Misc expense 1,700 31-Dec Bal. Salary expense 1,600 31-Dec 8-Dec 16-Dec Depreciation expense 31-Dec 6,580 31-Dec 31-Dec Insurance expense 2,040 31-Dec 1,700 1,600 6,580 2,040 Bal. Bal. Bal. Supplies (Office) expense 31-Dec 1,680 31-Dec Rent expense 1,240 31-Dec Bal. Supplies (Racing) expense 31-Dec 2,690 31-Dec . Interest expense 1,175 31-Dec 31-Dec 31-Dec 1,240 1,680 2,690 1,175 Bal. Bal. 31-Dec Income tax expense 13,800 31-Dec 13,800 Bal.

Unadjusted TB As of Dec Debit Credit 98,200 4,080 3,720 1,900 2,800 14,900 18,000 Adjusted TB As of Dec Debit Credit 98,200 2,040 2,480 220 110 14,900 18,000 6,580 2,800 Post closing TB As of Dec Debit Credit 98,200 2,040 2,480 220 110 14,900 18,000 6,580 2,800 2,800 1,175 1,175 Great Adventures Inc. Trial Balance Accounts Cash Prepaid Insurance Prepaid Rent Supplies (Office) Supplies (Racing) Equipment (Bikes) Equipment (Kayaks) Accumulated Depreciation Accounts Payable Deferred Revenue Interest Payable Income taxes payable Notes Payable Common stock Retained Earnings Dividends Service revenue (Clinic) Service revenue (Racing) Advertising expense Legal fees expense Misc expense Salary expense Depreciation expense Insurance expense Rent expense Supplies (Office) expense Supplies (Racing) expense Interest expense Income tax expense Totals 47,000 20,000 13,800 47,000 20,000 13,800 47,000 20,000 44,595 3,500 3,500 61,400 22,400 61,400 22,400 1,300 1,900 1,700 1,600 1,300 1,900 1,700 1,600 6,580 2,040 1,240 1,680 2,690 1,175 13,800 175,155 153,600 153,600 175,155 135,950 135,950

61,400 22,400 83,800 Great Adventures Inc. Income Statement For period ending Dec 31 Revenues Service revenue (Clinic) Service revenue (Racing) Total Revenues Expenses: Advertising expense Legal fees expense Misc expense Salary expense Depreciation expense Insurance expense Rent expense Supplies (Office) expense Supplies (Racing) expense Interest expense Total Expenses Net Income before income taxes Income taxes Net Income 1,300 1,900 1,700 1,600 6,580 2,040 1,240 1,680 2,690 1,175 21,905 61,895 13,800 48,095 Retained Earnings Statement For period ending Dec 31 Beginning balance Net Income Less Dividends Retained Earnings 48,095 3,500 44,595

Great Adventures Inc. Statement of Stockholders Equity For period ending Dec 31 Common Stock Retained Earnings Total Equity 20,000 Beginning balance Issue of common stock Net Income Dividends Ending Balance 48,095 (3,500) 44,595 20,000 48,095 (3,500) 64,595 20,000

Great Adventures Inc. Balance Sheet As of Dec 31 Assets Current Assets: Cash Prepaid Insurance Prepaid Rent Supplies (Office) Supplies (Racing) Total Current Assets Liabilities Current Liabilities: 98,200 Accounts Payable 2,040 Interest Payable 2,480 Income taxes payable 220 Total Current Liabiltiies 110 103,050 Non-Current Liabilities: Notes Payable Total Liabilities 2,800 1,175 13,800 17,775 47,000 64,775 Long-term Assets: Equipment (Bikes) Equipment (Kayaks) Accumulated Depreciation Total Long-term Assets Stockholders Equity: 14,900 Common stock 18,000 Retained Earnings (6,580) 26,320 Total Stockholders Equity 20,000 44,595 64,595 Total Assets 129,370 Total Liabilities & Stockholders Equity 129,370

Credit Closing entries No. Date Accounts 35 31-Dec Service revenue (Clinic) Service revenue (Racing) Retained Earnings Debit 61,400 22,400 83,800 36 35,705 31-Dec Retained Earnings Advertising expense Legal fees expense Misc expense Salary expense Depreciation expense Insurance expense Rent expense Supplies (Office) expense Supplies (Racing) expense Interest expense Income tax expense 1,300 1,900 1,700 1,600 6,580 2,040 1,240 1,680 2,690 1,175 13,800 37 3,500 31-Dec Retained Earnings Dividends 3,500