Question

Jul. Jul. Jul. purchase Required information Great Adventures Problem AP3-1 [The following information applies to the questions displayed below.] 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 33,000 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. 1 Sell $16,500 of common stock to Suzie. Jul. 1 Sell $16,500 of common stock to Tony. 1 Purchase a one-year insurance policy for $5,760 ($480 per month) to cover injuries to participants during outdoor clinics. Jul. 2 Pay legal fees of $1,900 associated with incorporation. Jul. 4 Purchase office supplies of $1,300 on account. 7 Pay for advertising of $270 to a local newspaper for an upcoming mountain biking clinic to be held on 15. Attendees will be charged $40 on the day of the clinic. Jul. 8 Purchase 10 mountain bikes, paying $12,200 cash. Jul. 15 On the day of the clinic, Great Adventures receives cash of $2,400 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 $2,850. Jul. 24 Pay $870 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 $9,000 in advance from 60 kayakers for the upcoming kayak clinic. Aug. i Great Adventures obtains a $40,000 low-interest loan for the company from the city council, which has recently passed an initiative ve 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 $23,800 cash. Aug. 10 Twenty additional kayakers pay $4,000 ($200 each), in addition to the $9,000 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 $1,300 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 $4,560 ($380 per month) in advance. Sep. 21 Tony conducts a rock-climbing clinic. The company receives $13,800 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 $18,500 cash. 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 $590. Dec. 5 To organize and promote race, Tony hires his college roommate Victor. Victor will be paid $70 in salary for each team that competes in the race. His salary will be paid after the race. 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 $2,300 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 $23,600 cash from a total of forty teams, and the race is held. Dec. 16 The company pays Victor's salary of $2,800. 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 $5,300. Tony surprises Suzie by proposing that they get married. Suzie accepts and they get married! Dec. Dec. 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 $8,400. 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 $1,300 of office supplies purchased on July 4, $270 remains. e. Interest expense on the $40,000 loan obtained from the city council on August 1 should be recorded. f. Of the $2,300 of racing supplies purchased on December 12, $260 remains. g. Suzie calculates that the company owes $15,000 in income taxes.

Answer 1

Journal entry:
Date	General journal					Debit	Credit
Jul 1.	Cash		(16500+16500)			33000
	Common stock						33000
	(Issued common stock to tony and suzie)
Jul 1.	Prepaid insurance					5760
	Cash						5760
	(Insurance policy paid for 1 year)
Jul 2.	Legal fees expense					1900
	Cash						1900
	(Legal expense paid)
Jul 4.	Supplies (Office)					1300
	Accounts payable						1300
	(Purchase of office supplies on account)
Jul 7.	Advertising expense					270
	Cash						270
	(Advertising expense paid)
Jul 8.	Equipment (Bikes)					12200
	Cash						12200
	(Bikes purchased)
Jul 15.	Cash					2400
	Service revenue (Clinic)						2400
	(Received cash from bikers)
Jul 22.	Cash					2850
	Service revenue (Clinic)						2850
	(Received cash from bikers)
Jul 24.	Advertising expense					870
	Cash						870
	(Advertising expense paid)
Jul 30.	Cash					9000
	Deferred revenue						9000
	(Received cash from customers in advance)
Aug 1.	Cash					40000
	Notes payable						40000
	(Loan received)
Aug 4.	Equipment (Kayaks)					23800
	Cash						23800
	(Kayaks purchased)
Aug 10.	Cash					4000
	Deferred revenue					9000
	Service revenue (clinic)						13000
	(Services provided and cash received)
Aug 17.	Cash					11000
	Service revenue (Clinic)						11000
	(Services provided and cash received)
Aug 24.	Accounts payable					1300
	Cash						1300
	(Paid to supplier)

Sep 1. 4560 4560 Sep 21. 138001 13800 Oct 17. 18500 18500 Dec 1. Dec 5. (Paid to supplier) Prepaid rent Cash (Rent paid for 1 year) Cash Service revenue (Clinic) (Services provided and cash received) Cash Service revenue (Clinic) (Services provided and cash received) No journal entry required No journal entry required Miscellaneous expense Cash (Paid for permit) Supplies (Racing) Accounts payable (Purchase of office supplies on account) Cash Service revenue (Racing) (Services provided and cash received) Salaries expense Cash (Salaries paid) Dec 8. 2000 2000 Dec 12. 2300 2300 Dec 15. 236001 23600 Dec 16. 2800 2800

B D Dec 31. 4300 (Salaries paid) Dividends Cash (Dividend paid) No journal entry required 4300 Dec 31. Debit Credit 8400 8400 (6*480) 2880 2880 (4*380) 1520 Adjusting entries: Date General journal Dec 31. Depreciation expense Accumulated depreciation (Depreciation recorded) Dec 31. Insurance expense Prepaid insurance (Insurance expired) Dec 31. Rent expense Prepaid rent (Rent expired) Dec 31. Supplies expense (Office) Supplies (Office) (Supplies used) Dec 31. Interest expense Interest payable (Interest due for 5 months) Dec 31. Supplies expense (Racing) 15201 (1300-270) 1030 1030 (40000*6%*5/12) 1000 1000 (2300-260) 2040

Dec 31. (2300-260) 2040 2040 Supplies expense (Racing) Supplies (Racing) (Supplies used) Income tax expensel Income tax payable (Income tax due) Dec 31. 15000 15000 Ref. Ref. Ref. July 1. Prepaid insurance Debit Credit 5760 2880 Dec 31. 5760 2880 2880 End. Bal. July 1. July 15. July 22. July 30. Aug 1. Aug 10. Aug 17. Sep 21. Cash Debit Credit Ref. 33000 5760 July 1. 2400 1900 July 2 2850 270 July 7. 9000 12200 July 8. 40000 870 July 24. 4000 23800 Aug 4. 11000 1300 Aug 24. 13800 4560 Sep 1. 18500 2000 Dec 8. 23600 2800 Dec 16. 4300 Dec 31. Oct 17. Dec 15. 59760 158150 98390 End. Bal.

Ref. Prepaid rent Debit Credit Ref. 4560 1520 Dec 31. 4560 1520 3040 Ref. July 4. Supplies (Office) Debit Credit Ref. 1300 1030 Dec 31. 1300 1030 Sep 1. End. Bal. End. Bal. 270 Ref. Supplies (Racing) Debit Credit Ref. 2300 2040 Dec 31. Equipment (Bikes) Debit Credit 12200 Ref. July 8. Ref. Dec 12. 2300 2040 End. Bal. 260 Equipment (Kayaks) Debit Credit Ref. 23800 Ref. Aug 4. Ref. Accumulated depreciation Debit Credit Ref. 8400 Dec 31. Ref. Ref. Aug 24. Aug 10. Accounts payable Debit Credit Ref. 1300 1300 July 4. 2300 Dec 12. 1300 3600 2300 End. Bal. Deferred revenue Debit Credit Ref. 9000 9000 July 30. 9000 9000 0 End. Bal.

Ref. Interest payable Debit Credit Ref. 1000 Dec 31. Ref. Income tax payable Debit Credit Ref. 15000 Dec 31. Ref. Notes payable Debit Credit Ref. 40000 Aug 1. Ref. Common stock Debit Credit Ref. 33000 July 1. 0 33000 33000 End. Bal. Dividends Debit Credit 4300 Ref. Ref. Dec 31. Ref. Service revenue (clinic) Debit Credit Ref. 2400 July 15. 2850 July 22. 13000 Aug 10. 11000 Aug 17. 13800 Sep 21. 18500 Oct 17. 0 61550 61550 End. Bal.

Ref. Service revenue (Racing) Debit Credit Ref. 23600 Dec 15. Ref. July 7. July 24. End. Bal. Advertising expense Debit Credit Ref. 270 870 1140 0 1140 Miscellaneous expense Debit Credit Ref. 2000 Depreciation expense Debit Credit Ref. 8400 Ref. July 2. Ref. Dec 8. Legal fees expense Debit Credit Ref. 1900 Salaries expense Debit Credit Ref. 2800 Ref. Dec 16. Ref. Dec 31. Insurance expense Debit Credit 2880 Ref. Ref. Ref. Dec 31. Rent expense Debit Credit 1520 Ref. Dec 31. Ref. Dec 31. Supplies expense (Office) Debit Credit Ref. 1030 Ref. Dec 31. Supplies expense (Racing) Debit Credit Ref. 2040 Interest expense Debit Credit 1000 Ref. Dec 31. Ref. Ref. Dec 31. Income tax expense Debit Credit Ref. 15000

Debit Credit 98390 2880 3040 270 260 12200 23800 Great adventures Inc. Adjusted trial balance December 31, 2021 Accounts Cash Prepaid insurance Prepaid rent Supplies (Office) Supplies (Racing) Equipment (Bikes) Equipment (Kayaks) Accumulated depreciation Accounts payable Interest payable Income tax payable Notes payable Common stock Dividends Service revenue (clinic) Service revenue (Racing) Advertising expense Legal fees expense Miscellaneous expense Salaries expense 84001 23001 1000 15000 40000 33000 4300 61550 23600 1140 1900 2000 2800

Salaries expense Depreciation expense Insurance expense Rent expense Supplies expense (Office) Supplies expense (Racing) Interest expense Income tax expense Totals 2800 8400 2880 1520 1030 2040 1000 15000 184850 184850 Debit Credit 61550 23600 85150 39710 Closing entries: Date General journal Dec 31,2021 Service revenue (clinic) Service revenue (Racing) Income summary (To close revenue accounts) Dec 31,2021 Income summary Advertising expense Legal fees expense Miscellaneous expense Salaries expense Depreciation expense Insurance expense Rent expense 1140 1900 2000 2800 8400 2880 1520

H 2880 1520 1030 2040 1000 15000 Insurance expense Rent expense Supplies expense (Office) Supplies expense (Racing) Interest expense Income tax expense (To close expense accounts) Dec 31,2021 Income summary Retained earnings (To close income summary) Dec 31, 2021 Retained earnings Dividends (To close dividend) 45440 45440 4300 4300 Great adventures Inc. Income statement For the period ended December 31,2021 $ $ Revenues: Service revenue (clinic) 61550 Service revenue (Racing) 23600 Total revenues 85150 Less: Expenses Advertising expense 1140

1140 1900 2000 2800 8400 2880 Advertising expense Legal fees expense Miscellaneous expense Salaries expense Depreciation expense Insurance expense Rent expense Supplies expense (Office) Supplies expense (Racing) Interest expense Income tax expense Total expenses Net income 1520 10301 2040 1000 15000 39710 45440 Great adventures Inc. Statement of stockholder's equity For the period ended December 31,2021 Total Common Retained stockholder's stock earnings equity 0 0 0 33000 0 33000 0 45440 45440 Beginning balance Issued common stock Net income

33000 33000 45440 0 45440 Issued common stock Net income Dividends paid Ending balance 0 -4300 41140 -4300 74140 33000 Great adventures Inc. Balance sheet As on December 31, 2021 $ $ 98390 2880 3040 Assets Current assets: Cash Prepaid insurance Prepaid rent Supplies (Office) Supplies (Racing) Total current assets Long-term assets: Equipment (Bikes) Equipment (Kayaks) 270 260 104840 12200 23800 36000 8400 27600 Less:Accumulated depreciation Total assets 132440

27600 132440 Less:Accumulated depreciation 8400 Total assets Liabilities and stockholder's equity Current liabilities: Accounts payable 2300 Interest payable 1000 Income tax payable 15000 Total current liabilities Long-term liabilities: Notes payable Total liabilities Stockholder's equity: Common stock 33000 Retained earnings 41140 Total liabilities and stockholder's equity 18300 40000 58300 74140 132440