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. a. GIPI issued stock in exchange for $200,000 cash on 1/01. b. GIPI purchased a gymnasium building and gym equipment on 1/02 for $62,000, 80% of which related to the gymnasium and 20% to the equipment c. GIPI paid $200 cash on 1/03 to have the gym equipment refurbished before it could be used d. GIPI provided $7,000 in training on 1/04 and expected collection in February. e. GIPI collected $45,000 cash in training fees on 1/10, of which $43,000 related to January and $2,000 related to February. f. GIPI paid $27,000 of wages and $9,500 in utilities on 1/30. g. GIPI will depreciate the gymnasium building using the straight-line method over 10 years with a residual value of $2,500. 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. h. GIPI received a bill on 1/31 for $480 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. j. GIPI's income tax rate is 30%. Assume depreciation for tax is the same amount as depreciation for financial reporting purposes.

Could someone please help with this problem I really need help with the calculations for journal entries for 9 and 10 all the rest are correct, Thank you very much in advance.

Answer 1

	Date	Account title and explanation	Debit	Credit
9	Jan 31	Bad debt expense [7,000 x 3%]	$210
		Allowance for doubtful account		$210
		[To record bad debt expense]
10	Jan 31	Income tax expense	$4,167.60
		Income tax payable		$4,167.60
		[To record income tax expense]

Explanation:

For 9,

Given that bad debt expense is 3% on under 30-day accounts receivable. Accounts receivable balance is $7,000. Therefore bad debt expense is $7,000 x 3% = $ 210

For 10,

Income statement
Service revenue (7,000+45,000)		$52,000
Expenses:
Salaries and Wages Expense	$27,000
Utilities expense	$9,500
Depreciation expense	$918
Advertising expense	$480
Bad debt expense	$210
Total Expenses		$38,108
Income before income tax		$13,892
Income tax (13,892 x 30%)		$4,167.60
Net income		$9,724.40