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 39,000 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 $19,500 of common stock to Suzie.
Jul.		1		Sell $19,500 of common stock to Tony.
Jul.		1		Purchase a one-year insurance policy for $4,200 ($350 per month) to cover injuries to participants during outdoor clinics.
Jul.		2		Pay legal fees of $1,200 associated with incorporation.
Jul.		4		Purchase office supplies of $1,900 on account.
Jul.		7		Pay for advertising of $300 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $60 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 $3,000 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 $3,300.
Jul.		24		Pay $850 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 $33,000 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 $23,400 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 $11,600 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 $3,960 ($330 per month) in advance.
Sep.		21		Tony conducts a rock-climbing clinic. The company receives $13,400 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 $19,300 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 $650.
Dec.		5		To help organize and promote the race, Tony hires his college roommate, Victor. Victor will be paid $50 in salary for each team that competes in the race. His salary will be paid after the race.
Dec.		8		The company pays $2,000 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 $26,000 cash from a total of forty teams, and the race is held.
Dec.		16		The company pays Victor’s salary of $2,000.
Dec.		31		The company pays a dividend of $4,000 ($2,000 to Tony and $2,000 to Suzie).
Dec.		31		Using his personal money, Tony purchases a diamond ring for $5,300. 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 $8,700.
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 $1,900 of office supplies purchased on July 4, $360 remains.
5. Interest expense on the $33,000 loan obtained from the city council on August 1 should be recorded.
6. Of the $2,600 of racing supplies purchased on December 12, $220 remains.
7. Suzie calculates that the company owes $14,200 in income taxes.

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

Credit GREAT ADVENTURES, Inc. Adjusted Trial Balance December 31, 2021 Accounts Debit 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

2. . For the period July 1 to December 31, 2021, prepare an

Income Statement,Statement of Stockholders’ Equity: For the period July 1 to December 31, 2021, prepare a statement of stockholders’ equity. All account balances on July 1 were zero.Classified Balance Sheet.

3. Post the closing entries of retained earnings to the T-account.

4. Prepare a post-closing trial balance as of December 31, 2021.

5.

5. After comparing the two balances, Suzie has some concern because the bank’s balance of $53,630 is substantially less than the company’s balance of $58,730.

1-a. Prepare Great Adventures’ bank reconciliation for the six-month period ended December 31, 2021.(Amounts to be deducted should be indicated with a minus sign. Total entries to the same account together when entering in the bank reconciliation.)

2-b. Record any necessary entries to adjust cash.

1. Record the amount that increase cash.

2. Record the amount that decrease cash.

Answer 1

Great Adventures Journal Enteries Date Particulars 1.7.2018 Cash a/c Dr. To Common Stock (Being Equal no. of stock issued to Tony and Suzie) Debit in $Credit in $ 39000 39000 Debit in $ Credit in $ 29250 4200 1900 4200 17200 1.7.2018 Prepaid Insurance a/c Dr. To Cash (Being Insurance paid in cash) 360 per month Trial Balance For the period ending 31.7.2018 Particulars Cash Prepaid Insurance Office Supplies Equipment(Bikes) Accounts Payable Common Stock Service revenue (Racing) Unearned Kayaking Service Legal Fees Advertising Expense Totals 4200 1900 39000 6300 7700 1200 2.7.2018 Legal Fees a/c Dr. To Cash (Being Legal Fees paid in Cash) 1200 1200 1150 54900 54900 4.7.2018 1900 Office Supplies a/c Dr. To Accounts Payable (Being Supplies purchased on account) 1900 300 7.7.2018 Advertising Expense a/c Dr. To Cash (Being advertising expense paid to newspaper) 300 17200 8.7.2018 Mountain Bikes a/c Dr. To Cash (Being 10 Mountain Bikes purchased for cash) 17200 3000 15.7.2018 Cash a/c Dr. To Service revenue (Racing) (Being cash collected from Mountain Bike attendees) 3000 3300 22.7.2018 Cash a/c Dr. To Service revenue (Racing) (Being cash collected from Mountain Bike attendees) 3300 24.7.2018 Advertising Expense a/c Dr. To Cash (Being advertising expense paid to local radio station) 7700 30.7.2018 Cash a/c Dr. To Unearned Kayaking Service (Being Advance received for Kayaking service) 7700

Journal Enteries Date Particulars 1.8.2018 Cash a/c Dr. To Loan (Being Loan taken from city council) Debit in $Credit in $ 33000 33000 4.8.2018 23400 Kayaks a/c Dr. To Cash (Kayaks purchased in cash) 23400 3200 7700 10.8.2018 Cash a/c Dr. Deferred revenue a/c Dr. To Service revenue (Clinic) (Being revenue recognized) 10900 11600 17.8.2018 Cash a/c Dr. To Service revenue (Clinic) 11600 1900 24.8.2018 Accounts Payable a/c Dr. To Cash (Being Accounts Payable paid in cash) 1900 1.9.2018 3960 Prepaid rent a/c Dr. To Cash (Being rent paid in cash) 250 per month 3960 13400 21.9.2018 Cash a/c Dr. To Service revenue (Clinic) (Being services performed for cash) 13400 19300 17.10.2018 Cash a/c Dr. To Service revenue (Clinic) (Being services performed for cash) 19300 20001 8.12.2018 Miscellaneous expense a/c Dr. To Cash (Being permit purchased in cash) 2000 26001 12.12.2018 Racing Supplies a/c Dr. To Accounts Payable |(Being Racing supplies purchased on account) 2600 260001 15.12.2018 Cash a/c Dr. To Service revenue (Racing) (Being services performed for cash) 26000 2000 16.12.2018 Salary expense a/c Dr. To Cash (Being salary paid to Victor in cash) 2000 4000 31.12.2018 Dividend a/c Dr. To Cash (Being dividend paid to Tony and Suzie) 4000 31.12.2018 No Entry

Adjusting Enteries Date Particulars 31.12.2018 Depreciation a/c Dr. To Accumulated Depreciation (Being depreciation charged to asset) Debit in $ Credit in $ 8700 8700 31.12.2018 Insurance expense a/c Dr. 2100 To Prepaid Insurance |(Being Insurance expense charged to Prepaid insurance) 2100 31.12.2018 Rent expense a/c Dr. 1320 To Prepaid Rent (Being rent expense charged to Prepaid Rent) 330 x 4 = 1320 1320 1540 1540 31.12.2018 Office Supplies expense a/c Dr. To Office Supplies (Being Supplies expense charged to Office Supplies.) 1900 - 360 31.12.2018 Interest expense a/c Dr. To Interest payable 33000 * 6% * 5/12 (Being Interest expense accrued) 825 825 2380 31.12.2018 Racing Supplies expense a/c Dr. 2380 To Racing Supplies (Being racing supplies expense charged to racing supplies) 2600 - 220 31.12.2018 Income tax expense a/c Dr. 14200 To Income tax payable (Being income tax accrued) 14200 Closing Enteries Date Particulars 31.12.2018 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 $ 37415 1150 1200 2000 2000 8700 2100 1320 1540 2380 825 14200 81200 6300 31.12.2018 Service revenue (Clinic) a/c Dr. Service revenue (Racing) a/c Dr. To Income Summary (Being Revenues closed to Income summary) 87500 50085 31.12.2018 Income Summary a/c Dr. To Retained Earnings |(Being profit transferred to retained earnings) 50085 4000 31.12.2018 Retained Earnings a/c Dr. To Dividends (Being dividends charge to Retained Earnings) 4000

Adjusted Trial Balance As at 31.12.2018 Adjusted Post Closing Debit in $ Credit in $ Debit in $ Credit in $ 98490 2100 2640 360 220 17200 98490 2100 2640 360 220 17200 8700 8700 23400 23400 2600 825 14200 2600 825 14200 33000 33000 39000 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 39000 46085 4000 81200 6300 1150 1200 2000 2000 8700 2100 1320 1540 2380 825 14200 185825 185825 1 44410144410

81200 6300 87500 Statement of Income For the period ending 31.12.2018 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 1150 1200 2000 2000 8700 2100 1320 1540 2380 825 14200 37415 50085 Statement of Retained Earnings Net Income Less:Dividends 31.12.2018 50085 -4000 46085 Statement of Retained Earnings For the period ending 31.12.2018 1.8.2018 Add:Net Income Less:Dividends Common Retained Total Stock Earnings Equity 39000 39000 50085 50085 -4000 -4000 39000 4608585085

Amounts in $ Amounts in $ Balance sheet As at 31.12.2018 Assets Current Assets Cash Prepaid insurance Prepaid rent Supplies (Office) Racing Supplies Amounts in $ Amounts in $ Liabilities Current Liabilities 98490 Accounts payable 2100 Interest payable 2640 Income tax payable 360 220 103810 Non Current Liabilities Loan 2600 825 14200 17625 33000 Non Current Assets Equipment(Bikes) Kayaks Accumulated Depreciation Total Assets 17200 23400 -8700 Shareholders Equity Common stock 39000 31900 Retained Earnings 46085 135710 Total Liabilities & Shareholders Eq. 85085 135710