Question

Grid Iron Prep Inc. (GIPI) is a service business incorporated in January of the current year to provide personal training for athletes aspiring to play college football. The following transactions occurred during the month ended January 31. GIPI issued stock in exchange for $140,000 cash on 1/01. GIPI purchased a gymnasium building and gym equipment on 1/02 for $54,000, 80% of which related to the gymnasium and 20% to the equipment. GIPI paid $600 cash on 1/03 to have the gym equipment refurbished before it could be used. GIPI provided $8,000 in training on 1/04 and expected collection in February. GIPI collected $40,000 cash in training fees on 1/10, of which $36,000 related to January and $4,000 related to February. GIPI paid $26,500 of wages and $7,000 in utilities on 1/30. GIPI will depreciate the gymnasium building using the straight-line method over 10 years with a residual value of $4,000. Gym equipment will be depreciated using the double-declining-balance method, with an estimated residual value of $3,500 at the end of its four-year useful life. Record depreciation on 1/31 equal to one-twelfth the yearly amount. GIPI received a bill on 1/31 for $240 for advertising done on 1/31. The bill has not been paid or recorded. GIPI uses the aging method for estimating doubtful accounts and, on 1/31, will record an estimated 3 percent of its under-30-day-old accounts as not collectible. GIPI’s income tax rate is 30%. Assume depreciation for tax is the same amount as depreciation for financial reporting purposes.

Answer 1

Grid Iron Prep Inc. Journal Enteries Trans. Particulars Cash a/c Dr. To Common Stock (Common Stock issued) Debit in $ Credit in $ 140000 140000 b. Dr. Dr. 43200 10800 Building a/c Equipment a/c To Cash (Assets purchased) 54000 600 Equipment a/c Dr. To Cash (Equipment refurbished) 600 d. 8000 Accounts Receivable a/c Dr. To Training Revenue (Revenue on account) 8000 Dr. 40000 Cash a/c To Training Revenue To Unearned Revenue (Cash fro services) 36000 4000 Dr. Dr. 26500 7000 Wages Expense a/c Utilities Expense a/c To Cash (Expense paid) 33500 Adjusting Enteries Trans. Particulars Depreciation a/c Dr. To Accumulated Depreciationn-Build (Being depreciation charged to asset) (43200-4000)/( 10 x 12) = 327 Debit in $ Credit in $ 327 327 475 475 Depreciation a/c Dr. To Accumulated Depreciationn - Equip (Being depreciation charged to asset) (10800 + 600) x 2 x 1/4 x 1/12 = 428 h. Dr. 240 Advertising Expense a/c To Accounts Payable (Expense accrued) 240 240 240 Bad Debts a/c Dr. To Allowance fro Doubtful accounts (Bad debts estimated) 8000 x 3% Dr. 2766 Income Tax Expense a/c To Income Tax Payable (Income tax accrued) 2766

Worksheet For the period ending January 31 Particulars Cash Accounts Receivable Allowance for Doubtful accounts Building Accumulated Depreciationn - Build Equipment Accumulated Depreciationn - Equip Accounts Payable Unearned Revenue Income Tax Payable Common Stock Training Revenue Wages Expense Utilities Expense Depreciation Advertising Expense Bad Debts Income Tax Expense Totals Unadjusted Adjustments Adjusted Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 91900 91900 8000 8000 240 240 43200 43200 327 327 11400 11400 475 475 240 240 4000 4000 2766 2766 140000 140000 44000 44000 26500 26500 7000 7000 802 240 240 240 240 2766 2766 188000 188000 4047 4 047 192047 192047 802 44000 Statement of Income For the period ending January 31 Training Revenue Less: Wages Expense Utilities Expense Depreciation Advertising Expense Bad Debts 26500 7000 802 240 240 34782 9218 -2766 6453 Income Tax Expense @ 30% Net Income Statement of Retained Earnings For the period ending January 31 Net Income 6453

Amounts in $ Amounts in $ Balance sheet As at Jan 31 Assets Amounts in $ Amounts in $ Liabilities Current Assets Current Liabilities Cash 91900 Accounts Payable Accounts Receivable Unearned Revenue Allowance for Doubtfu -240 99660 Income Tax Payable 8000 240 4000 2766 7006 Non Current Assets Building Accumulated Deprecia Equipment Accumulated Deprecia Total Assets 43200 -327 11400 42873 Shareholders Equity Common Stock 140000 10925 Retained Earnings 6453 153458 Total Liabilities & Shareholders Eq. -475 146453 153458