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 32,000 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 $16,000 of common stock to Suzie.
Jul.		1		Sell $16,000 of common stock to Tony.
Jul.		1		Purchase a one-year insurance policy for $4,920 ($410 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 $1,300 on account.
Jul.		7		Pay for advertising of $350 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 $10,100 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 $2,350.
Jul.		24		Pay $860 to a local radio station for advertising to appear immediately. A kayaking clinic will be held on August 10, and attendees can pay $110 in advance or $160 on the day of the clinic.
Jul.		30		Great Adventures receives cash of $7,700 in advance from 70 kayakers for the upcoming kayak clinic.
Aug.		1		Great Adventures obtains a $39,000 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 $25,200 cash.
Aug.		10		Twenty additional kayakers pay $3,200 ($160 each), in addition to the $7,700 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 $11,100 cash.
Aug.		24		Office supplies of $1,300 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 $4,200 ($350 per month) in advance.
Sep.		21		Tony conducts a rock-climbing clinic. The company receives $14,400 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 $19,500 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 $60 in salary for each team that competes in the race. His salary will be paid after the race.
Dec.		8		The company pays $1,100 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 $3,000 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 $2,400.
Dec.		31		The company pays a dividend of $4,300 ($2,150 to Tony and $2,150 to Suzie).
Dec.		31		Using his personal money, Tony purchases a diamond ring for $4,200. 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 $7,900.
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 $1,300 of office supplies purchased on July 4, $280 remains.
5. Interest expense on the $39,000 loan obtained from the city council on August 1 should be recorded.
6. Of the $3,000 of racing supplies purchased on December 12, $240 remains.
7. Suzie calculates that the company owes $14,600 in income taxes.

Great Adventures Problem AP3-1 Part 4

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

GREAT ADVENTURES, Inc. Adjusted Trial Balance December 31, 2021 Accounts Debit Credit Cash Prepaid Insurance Prepaid Rent Supplies (Office) Supplies (Racing) Equipment (Bikes) Equipment (Kayaks) Accumulated Depreciation Accounts Payable Income Tax Payable Interest Payable Notes Payable Common Stock Dividends Service Revenue (Clinic) Service Revenue (Racing) Advertising Expense Depreciation Expense Income Tax Expense Insurance Expense Interest Expense Legal Fees Expense Miscellaneous Expense Rent Expense Salries Expense Supplies Expense (Office) Supplies Expense (Racing) Totals $0 $0

Answer 1

Solution

Great Adventures

Adjusted Trial Balance

Great Adventures
Adjusted Trial Balance
Account Titles	Debit	Credit
Cash	97,420
Prepaid Insurance	2,460
Prepaid Rent	2,800
Supplies (Office)	280
Supplies (Racing)	240
Equipment (bikes)	10,100
Equipment (kayaks)	25,200
Accumulated Depreciation		7,900
Accounts Payable		3,000
Income Tax Payable		14,600
interest payable		975
Notes payable		39,000
Common Stock		32,000
Dividends	4,300
Service Revenue (clinic)		60,250
Service Revenue (clinic)		22,400
Advertising expense	1,210
Depreciation expense	7,900
Income tax expense	14,600
insurance expense	2,460
interest expense	975
legal fees expense	1,500
Miscellaneous expense	1,100
Rent expense	1,400
salaries expense	2,400
supplies expense (office)	1,020
Supplies expense (racing)	2,760
Totals	$180,125	$180,125

Computations:

	Cash
Common stock	$32,000	Prepaid insurance	$4,920
Race Revenue	2,000	Legal fees expense	$1,500
Race Revenue	2,350	Advertising expense	350
Unearned kayak clinic revenue	7,700	Mountain bikes	10,100
bank loan	39,000	Advertising expense	860
Kayak clinic revenue	3,200	kayaks	25,200
Kayak clinic revenue	11,100	Accounts payable	1,300
Rock climbing clinic revenue	14,400	prepaid rent	4,200
orienteering clinic revenue	19,500	miscellaneous expense	1,100
Racing revenue	22,400	Salary expense	2,400
		Dividend	4,300
ending Cash balance	97,420

prepaid insurance (Dec 31) = 4,920 x 6/12 = 2,460
insurance expense = 4,920 x 6/12= 2,460
prepaid rent	4,200 x 8/12 =	2,800
rent expense	4,200 x 4/12 = 1,400

Supplies expense (office) = 1,300 – 280 = 1,020

Supplies expense (racing) = 3,000 – 240 = 2,760

Service revenue (clinic) –

Biking clinic   2,000

Biking clinic   2,350

Kayak clinic 7,700

Kayaks clinic 3,200

Kayak clinic 11,100

Rock climbing clinic 14,400

Orienteering clinic      19,500

Total service revenue (clinic) 60,250