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 40,000 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 $20,000 of common stock to Suzie. Jul. 1 Soll $20,000 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 $1,400 associated with incorporation. Jul. 4 Purchase office supplies of $1,900 on account. Jul. 7 Pay for advertising of $270 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 $16,000 cash. Jul. 15 On the day of the clinic, Great Adventures receives cash of $1,800 from 60 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 $2,150. Jul. 24 Pay $780 to a local radio station for advertising to appear immediately. A kayaking clinic will be held on August 10, and attendees can pay $130 in advance or $180 on the day of the clinic. Jul. 30 Great Adventures receives cash of $5,200 in advance from 40 kayakers for the upcoming kayak clinic. Aug. 1 Great Adventures obtains a $36,000 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 66 annual interest is due each year on July 31. Aug. 4 The company purchases 14 kayaks, paying $13,200 cash. Aug. 10 Twenty additional kayakers pay $3,600 $180 cach), in addition to the $5,200 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 $12,000 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 $4,080 ($340 per month) in advance. Sep. 21 Tony conducts a rock-climbing clinic. The company receives $14,800 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 $18,700 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 $690. Dec. 5 To help organize and promote the race, Tony hire 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 $1,300 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 $2,500 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 $27,600 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 $3,900 $1,950 to Tony and $1,950 to Suzie). Dec. 31 Using his personal money, Tony purchases a diamond ring for $3,800. 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. a. Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $7,100. b. Six months of the one-year insurance policy purchased on July 1 has expired. c. Four months of the one-year rental agreement purchased on September 1 has expired. d. Of the $1,900 of office supplies purchased on July 4, $390 remains. e Interest eynense on the $36000 loan ohtained from the city council on August 1 should he recorder

Answer 1

Great Adventures Journal Enteries Date Particulars 1.7.2021 Cash a/c Dr. To Common Stock (Being Equal no. of stock issued to Tony and Suzie) Debit in $Credit in $ 40000 40000 4080 1.7.2021 Prepaid Insurance a/c Dr. To Cash (Being Insurance paid in cash) 360 per month Trial Balance For the period ending 31.7.2021 Particulars Debit in $ Credit in $ Cash 26620 Prepaid Insurance 4080 Office Supplies 1900 Equipment(Bikes) 16000 Accounts Payable 1900 Common Stock 40000 Service revenue (Racing) 3950 Unearned Kayaking Service 5200 Legal Fees 1400 Advertising Expense 1050 Totals 5105051050 4080 1400 2.7.2021 Legal Fees a/c Dr. To Cash (Being Legal Fees paid in Cash) 1400 1900 4.7.2021 Office Supplies a/c Dr. To Accounts Payable (Being Supplies purchased on account) 1900 270 7.7.2021 Advertising Expense a/c Dr. To Cash (Being advertising expense paid to newspaper) 16000 8.7.2021 Mountain Bikes a/c Dr. To Cash (Being 10 Mountain Bikes purchased for cash) 16000 1800 15.7.2021 Cash a/c Dr. To Service revenue (Racing) (Being cash collected from Mountain Bike attendees) 1800 2150 22.7.2021 Cash a/c Dr. To Service revenue (Racing) (Being cash collected from Mountain Bike attendees) 2150 780 24.7.2021 Advertising Expense a/c Dr. To Cash (Being advertising expense paid to local radio station) 5200 30.7.2021 Cash a/c Dr. To Unearned Kayaking Service (Being Advance received for Kayaking service) 5200

Journal Enteries Date Particulars 1.8.2021 Cash a/c Dr. To Loan (Being Loan taken from city council) Debit in $ Credit in $ 36000 36000 4.8.2021 13200 Kayaks a/c Dr. To Cash (Kayaks purchased in cash) 13200 1 3600 5200 10.8.2021 Cash a/c Dr. Deferred revenue a/c Dr. To Service revenue (Clinic) (Being revenue recognized) 8800 12000 17.8.2021 Cash a/c Dr. To Service revenue (Clinic) 12000 1900 24.8.2021 Accounts Payable a/c Dr. To Cash (Being Accounts Payable paid in cash) 1900 4080 1.9.2021 Prepaid rent a/c Dr. To Cash (Being rent paid in cash) 340 per month 4080 148001 21.9.2021 Cash a/c Dr. To Service revenue (Clinic) (Being services performed for cash) 14800 18700 17.10.2021 Cash a/c Dr. To Service revenue (Clinic) (Being services performed for cash) 18700 1300 8.12.2021 Miscellaneous expense a/c Dr. To Cash (Being permit purchased in cash) 1300 25001 12.12.2021 Racing Supplies a/c Dr. To Accounts Payable (Being Racing supplies purchased on account) 2500 276001 15.12.2021 Cash a/c Dr. To Service revenue (Racing) (Being services performed for cash) 27600 1600) 16.12.2021 Salary expense a/c Dr. To Cash (Being salary paid to Victor in cash) 1600 3900 31.12.2021 Dividend a/c Dr. To Cash (Being dividend paid to Tony and Suzie) 3900 31.12.2021 No Entry

Adjusting Enteries Date Particulars 31.12.2021 Depreciation a/c Dr. To Accumulated Depreciation (Being depreciation charged to asset) Debit in $ Credit in $ 7100 7100 31.12.2021 Insurance expense a/c Dr. 20401 To Prepaid Insurance (Being Insurance expense charged to Prepaid insurance) 2040 31.12.2021 Rent expense a/c Dr. 1360 To Prepaid Rent (Being rent expense charged to Prepaid Rent) 340 x 4 = 1360 1360 1510 1510 31.12.2021 Office Supplies expense a/c Dr. To Office Supplies (Being Supplies expense charged to Office Supplies.) 1900 - 390 31.12.2021 Interest expense a/c Dr. To Interest payable 36000 * 6% * 5/12 (Being Interest expense accrued) 9001 900 2370 31.12.2021 Racing Supplies expense a/c Dr. 2370 To Racing Supplies (Being racing supplies expense charged to racing supplies) 2500-130 31.12.2021 Income tax expense a/c Dr. 13100 To Income tax payable (Being income tax accrued) 13100 Closing Enteries Date Particulars 31.12.2021 Income Summary a/c Dr. To Advertising expense To Legal fees expense To Miscellaneous expense To Salary expense To Depreciation To Insurance expense To Rent expense To Office Supplies expense To Racing Supplies expense To Interest expense To Income tax expense (Being expenses closed to Income summary) Debit in $ Credit in $ 33730 1050 1400 1300 1600 7100 2040 1360 1510 2370 900 13100 81900 3950 31.12.2021 Service revenue (Clinic) a/c Dr. Service revenue (Racing) a/c Dr. To Income Summary (Being Revenues closed to Income summary) 85850 52120 31.12.2021 Income Summary a/c Dr. To Retained Earnings |(Being profit transferred to retained earnings) 52120 3900 31.12.2021 Retained Earnings a/c Dr. To Dividends (Being dividends charge to Retained Earnings) 3900

Adjusted Trial Balance As at 31.12.2021 Adjusted Post Closing Debit in $ Credit in $ Debit in $ Credit in $ 113340 2040 2720 390 130 16000 113340 2040 2720 390 130 16000 7100 7100 13200 13200 2500 900 13100 2500 900 13100 36000 36000 40000 Particulars Assets Cash Prepaid insurance Prepaid rent Supplies (Office) Racing Supplies Equipment(Bikes) Accumulated Depreciation Kayaks Liabilities Accounts payable Interest payable Income tax payable Deferred revenue Loan Equity Common stock Retained Earnings Dividend Revenue Service revenue (Clinic) Service revenue (Racing) Expenses Advertising expense Legal fees expense Miscellaneous expense Salary expense Depreciation Insurance expense Rent expense Office Supplies expense Racing Supplies expense Interest expense Income tax expense Total 40000 48220 3900 81900 3950 1050 1400 1300 1600 7100 2040 1360 1510 2370 900 13100 185450 185450 1 47820 147820

81900 3950 85850 Statement of Income For the period ending 31.12.2021 Service revenue (Clinic) Service revenue (Racing) Totals Less: Advertising expense Legal fees expense Miscellaneous expense Salary expense Depreciation Insurance expense Rent expense Office Supplies expense Racing Supplies expense Interest expense Income tax expense Net Income 1050 1400 1300 1600 7100 2040 1360 1510 2370 900 13100 33730 52120 Statement of Retained Earnings Net Income Less:Dividends 31.12.2021 52120 -3900 48220 Statement of Retained Earnings For the period ending 31.12.2021 1.8.2021 Add:Net Income Less:Dividends Common Retained Stock Earnings 40000 52120 -3900 40000 48220 Total Equity 40000 52120 -3900 88220

Amounts in $ Amounts in $ Balance sheet As at 31.12.2021 Assets Current Assets Cash Prepaid insurance Prepaid rent Supplies (Office) Racing Supplies Amounts in $ Amounts in $ Liabilities Current Liabilities 113340 Accounts payable 2040 Interest payable 2720 Income tax payable 390 130 118620 Non Current Liabilities Loan 2500 900 13100 16500 36000 Non Current Assets Equipment(Bikes) Kayaks Accumulated Depreciation Total Assets 16000 13200 -7100 Shareholders Equity Common stock 40000 22100 Retained Earnings 48220 140720 Total Liabilities & Shareholders Eq. 88220 140720

	Retaned Earnings
Dividends	3900	Bal	0
		Income Summary	52120
Bal.	48220
	52120		52120