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 31,000 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 $15,500 of common stock to Suzie. Jul. 1 Sell $15,500 of common stock to Tony. Jul. 1 Purchase a one-year insurance policy for $3,720 ($310 per month) to cover injuries to participants during outdoor clinics. Jul. 2 Pay legal fees of $1,700 associated with incorporation. Jul. 4 Purchase office supplies of $1,400 on account. Jul. 7 Pay for advertising of $320 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $30 on the day of the clinic. Jul. 8 Purchase 10 mountain bikes, paying $17,200 cash. Jul. 15 On the day of the clinic, Great Adventures receives cash of $2,100 from 70 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 $2,450. Jul. 24 Pay $830 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 $7,500 in advance from 50 kayakers for the upcoming kayak clinic. Aug. 1 Great Adventures obtains a $32,000 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 $19,500 cash. Aug. 10 Twenty additional kayakers pay $4,000 ($200 each), in addition to the $7,500 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 $11,000 cash. Aug. 24 Office supplies of $1,400 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 $4,680 ($390 per month) in advance. Sep. 21 Tony conducts a rock-climbing clinic. The company receives $14, 300 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 $510. 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 $1,500 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 $2,600 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 $20,400 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 $4,100 ($2,050 to Tony and $2,050 to Suzie). Dec. 31 Using his personal money, Tony purchases a diamond ring for $5,000. Tony surprises Suzie by proposing that they get married. Suzie accepts and they get married!

Answer 1

Great Adventures Inc. Journal entries No. Date Accounts 1 1-Jul Cash Common Stock Credit Calculation Debit 15,500 15,500 15,500 1-Jul Cash Common Stock 15,500 3 3,720 1-Jul Prepaid Insurance Cash 3,720 4 1,700 2-Jul Legal fees expense Cash 1,700 1,400 4-Jul Supplies (Office) Accounts Payable 1,400 320 7-Jul Advertising expense Cash 320 7 17,200 8-Jul Equipment (Bikes) Cash 17,200 8 2,100 15-Jul Cash Service revenue (Clinic) 2,100 9 2,450 22-Jul Cash Service revenue (Clinic) 2,450 10 830 24-Jul Advertising expense Cash 830 11 7,500 30-Jul Cash Deferred Revenue 7,500 32,000 121-Aug Cash Notes Payable 32,000 13 19,500 4-Aug Equipment (Kayaks) Cash 19,500 14 10-Aug Cash Deferred Revenue Service revenue (Clinic) 4,000 7,500 11,500 15 11,000 17-Aug Cash Service revenue (Clinic) 11,000 16 1,400 24-Aug Accounts Payable Cash 1,400 17 1-Sep Prepaid Rent 4,680 Cash 4,680 18 14,300 21-Sep Cash Service revenue (Clinic) 14,300 19 18,400 17-Oct Cash Service revenue (Clinic) 18,400 20 1-Dec No entry 21 5-Dec No entry 22 1,500 8-Dec Misc expense Cash 1,500 23 2,600 12-Dec Supplies (Racing) Accounts Payable 2,600 24 20,400 15-Dec Cash Service revenue (Racing) 20,400 25 2,400 16-Dec Salary expense Cash 2,400 26 4,100 31-Dec Dividends Cash 4,100 27 31-Dec No entry Credit Calculation Adjusting entries No. Date Accounts 28 31-Dec Depreciation expense Accumulated Depreciation Debit 7,340 7,340 29 1,860 =3,720/12*6 31-Dec Insurance expense Prepaid Insurance 1,860 30 1,560 -4,680/12*4 31-Dec Rent expense Prepaid Rent 1,560 31 1,000 =1,400-400 31-Dec Supplies (Office) expense Supplies (Office) 1,000 32 800 =32,000*6%*5/12 31-Dec Interest expense Interest Payable 800 33 2,400 =2,600-200 31-Dec Supplies (Racing) expense Supplies (Racing) 2,400 34 14,900 31-Dec Income tax expense Income tax payable 14,900 Credit Calculation Closing entries No. Date Accounts 35 31-Dec Service revenue (Clinic) Service revenue (Racing) Retained Earnings Debit 59,750 20,400 80,150 36 36,610 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 1,150 1,700 1,500 2,400 7,340 1,860 1,560 1,000 2,400 800 14,900 37 4,100 31-Dec Retained Earnings Dividends 4,100

Credit Date Credit Date Credit Date Credit Debit Date Prepaid Insurance 3,720 31-Dec Debit Date Prepaid Rent 4,680 31-Dec Debit Date Supplies (Office) 1,400 31-Dec 1-Jul 1,860 1-Sep 1,560 4-Jul 1,000 Great Adventures Inc. T Accounts Date Debit Date Cash 1-Jul 15,500 1-Jul 1-Jul 15,500 2-Jul 15-Jul 2,100 7-Jul 22-Jul 2,450 8-Jul 30-Jul 7,500 24-Jul 1-Aug 32,000 10-Aug 4,000 24-Aug 17-Aug 11,000 1-Sep 21-Sep 14,300 8-Dec 17-Oct 18,400 16-Dec 15-Dec 20,400 31-Dec 3,720 1,700 320 17,200 830 19,500 4-Aug 1,400 4,680 1,500 2,400 4,100 Bal. Bal. 1,860 Bal. Bal. 85,800 Supplies (Racing) 2,600 31-Dec Equipment (Bikes) 17,200 3,120 Equipment (Kayaks) 19,500 400 Accum. Depreciation 31-Dec 12-Dec 2,400 8 -Jul 4-Aug 7,340 Bal. Bal. Bal. 7,340 17,200 Deferred Revenue 7,500 30-Jul Accounts Payable 1,400 4-Jul 12-Dec 19,500 Interest Payable 31-Dec Bal. Income taxes payable 31-Dec 24-Aug 10-Aug 7,500 800 14,900 1,400 2,600 2,600 Bal. 800 14,900 Bal. Notes Payable 1-Aug Common Stock 1-Jul 1-Jul Bal. Dividends 4,100 31-Dec Bal. Retained Earnings 36,610 31-Dec 4,100 32,000 31-Dec 80,150 15,500 15,500 31-Dec 31-Dec 4,100 32,000 31,000 Bal. 39,440 Bal. Service revenue (Racing) 16-Dec Bal. Legal fees expense 1,700 20,400 Advertising expense 320 830 7-Jul 24-Jul 2-Jul Bal. Service revenue (Clinic) 15-Jul 22-Jul 10-Aug 17-Aug 21-Sep 31-Dec 59,750 17-Oct 2,100 2,450 11,500 11,000 14,300 18,400 31-Dec 20,400 31-Dec 1,150 31-Dec 1,700 - Bal. Bal. Misc expense 1,500 31-Dec Bal. Salary expense 2,400 31-Dec Bal. Depreciation expense 31-Dec 7,340 31-Dec 8-Dec 16-Dec 31-Dec Insurance expense 1,860 31-Dec 1,500 2,400 7,340 1,860 Bal. Bal. Bal. Bal. Supplies (Office) expense 31-Dec 31-Dec Rent expense 1,560 31-Dec 31-Dec Supplies (Racing) expense 31-Dec 2,400 31-Dec 31-Dec Interest expense 800 31-Dec 1,560 1,000 2,400 800 Bal. Bal. Bal. 31-Dec Income tax expense 14,900 31-Dec 14,900 Bal.

Unadjusted TB As of Dec Debit Credit 85,800 3,720 4,680 1,400 2,600 17,200 19,500 Adjusted TB As of Dec Debit Credit 85,800 1,860 3,120 400 200 17,200 19,500 7,340 2,600 Post closing TB As of Dec Debit Credit 85,800 1,860 3,120 400 200 17,200 19,500 7,340 2,600 2,600 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 800 14,900 32,000 31,000 32,000 31,000 800 14,900 32,000 31,000 39,440 4,100 4,100 59,750 20,400 59,750 20,400 1,150 1,700 1,500 2,400 1,150 1,700 1,500 2,400 7,340 1,860 1,560 1,000 2,400 800 14,900 168,790 145,750 145,750 168,790 128,080 128,080

59,750 20,400 80,150 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 1,150 1,700 1,500 2,400 7,340 1,860 1,560 1,000 2,400 800 21,710 58,440 14,900 43,540 Retained Earnings Statement For period ending Dec 31 Beginning balance Net Income Less Dividends Retained Earnings 43,540 4,100 39,440

Great Adventures Inc. Statement of Stockholders Equity For period ending Dec 31 Common Stock Retained Earnings Total Equity 31,000 Beginning balance Issue of common stock Net Income Dividends Ending Balance 43,540 (4,100) 39,440 31,000 43,540 (4,100) 70,440 31,000

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: 85,800 Accounts Payable 1,860 Interest Payable 3,120 Income taxes payable 400 Total Current Liabiltiies 200 91,380 Non-Current Liabilities: Notes Payable Total Liabilities 2,600 800 14,900 18,300 32,000 50,300 Long-term Assets: Equipment (Bikes) Equipment (Kayaks) Accumulated Depreciation Total Long-term Assets Stockholders Equity: 17,200 Common stock 19,500 Retained Earnings (7,340) 29,360 Total Stockholders Equity 31,000 39,440 70,440 Total Assets 120,740 Total Liabilities & Stockholders Equity 120,740