Question

On July 1, 2018, Tony and Suzie organize their new company as a corporation, Great Adventures Inc. The following transactions occur from August 1 through December 31. Also, the balances are provided for the month ended July 31.
  
The articles of incorporation state that the corporation will sell 24,000 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 business activities occur during July for Great Adventures.
  
Jul. 1 Sell $12,000 of common stock to Suzie.
Jul. 1 Sell $12,000 of common stock to Tony.
Jul. 1 Purchase a one-year insurance policy for $4,440 ($370 per month) to cover injuries to participants during outdoor clinics.
Jul. 2 Pay legal fees of $1,300 associated with incorporation.
Jul. 4 Purchase office supplies of $1,800 on account.
Jul. 7 Pay for advertising of $230 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $50 the day of the clinic.
Jul. 8 Purchase 10 mountain bikes, paying $11,600 cash.
Jul. 15 On the day of the clinic, Great Adventures receives cash of $2,500 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 $2,950.
Jul. 24 Pay for advertising of $810 to a local radio station for a kayaking clinic to be held on August 10. Attendees can pay $130 in advance or $180 on the day of the clinic.
Jul. 30 Great Adventures receives cash of $9,100 in advance from 70 kayakers for the upcoming kayak clinic.
Aug. 1 Great Adventures obtains a $37,000 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 $15,600 cash.
Aug. 10 Twenty additional kayakers pay $3,600 ($180 each), in addition to the $9,100 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 $12,300 cash.
Aug. 24 Office supplies of $1,800 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, purchasing a one-year rental policy for $3,240 ($270 per month).
Sep. 21 Tony conducts a rock-climbing clinic. The company receives $14,000 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 $510.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 $1,500 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 $2,200 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 $20,400 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 $3,900 ($1,950 to Tony and $1,950 to Suzie).
Dec. 31 Using his personal money, Tony purchases a diamond ring for $4,500. 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, 2018.
  
a. Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $7,500.
b. Six months’ worth of insurance has expired.
c. Four months’ worth of rent has expired.
d. Of the $1,800 of office supplies purchased on July 4, $210 remains.
e. Interest expense on the $37,000 loan obtained from the city council on August 1 should be recorded.
f. Of the $2,200 of racing supplies purchased on December 12, $270 remains.
g. Suzie calculates that the company owes $14,300 in income taxes.
  
Assume the following ending balances for the month of July.

	Balance
Cash	$	20,170
Prepaid insurance		4,440
Supplies (Office)		1,800
Equipment (Bikes)		11,600
Accounts payable		1,800
Deferred revenue		9,100
Common stock		24,000
Service revenue (Clinic)		5,450
Advertising expense		1,040
Legal fees expense		1,300

Required:
1. Record transactions from July 1 through December 31. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Record adjusting entries as of December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
3. Post transactions from August 1 through December 31 and adjusting entries on December 31 to T-accounts. (Be sure to include beginning balances in the T-accounts.)

4. Prepare an adjusted trial balance as of December 31, 2018. (The items in the Trial Balance should be grouped as follows: Assets, Contra-asset accounts, Liabilities, Equity, Dividends, Revenues, and Expenses.)

5-a. For the period July 1 to December 31, 2018, prepare an income statement.
5-b. For the period July 1 to December 31, 2018, prepare a statement of stockholders’ equity. All account balances on July 1 were zero.

6. Record closing entries as of December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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

8. Prepare a post-closing trial balance as of December 31, 2018.

Answer 1

Great Adventures Journal Enteries Date 1.7.2018 Cash a/c Trial Balance For the period ending 31.7.2018 Particulars Cash Prepaid Insurance Office Supplies Equipment(Bikes) Accounts Payable Common Stock Mountain Biking Service Unearned Kayaking Service Legal Fees Advertising Expense Totals Debit in $ Credit in $ Particulars Debit in $ Credit in $ Dr 24000 To Common Stock 24000 20170 (Being Equal no. of stock issued to Tony and Suzie) 1800 1.7.2018Prepaid Insurance a/c Dr To Cash 4440 11600 4440 1800 (Being Insurance paid in cash) 24000 2.7.2018Legal Fees a/c To Cash 9100 1300 1300 1040 40350 1300 (Being Legal Fees paid in Cash) 40350 4.7.2018 Office Supplies a/c Dr To Accounts Payable 1800 1800 (Being Supplies purchased on account) 7.7.2018Advertising Expense a/c Dr 230 To Cash 230 (Being advertising expense paid to newspaper) 8.7.2018Mountain Bikes a/c Dr. 11600 To Cash 11600 (Being 10 Mountain Bikes purchased for cash) 15.7.2018 Cash a/c Dr 2500 To Mountain Biking Service 2500 (Being cash collected from Mountain Bike attendees) 22.7.2018 Cash a/c Dr 2950 To Mountain Biking Service 2950 (Being cash collected from Mountain Bike attendees) 24.7.2018 Advertising Expense a/c Dr 810 To Cash 810 (Being advertising expense paid to local radio station) 30.7.2018 Cash a/c 9100 To Unearned Kayaking Service 9100 (Being Advance received for Kayaking service)

Journal Enteries Adjusted Trial Balance As at 31.12.2018 Particulars Debit in $ Credit in Post Closing Debit in $ Credit in $ 1.8.2018Cash ac 37000 Adjusted Debit in $ Credit in Particulars Assets Cash Prepaid insurance Prepaid rent Supplies (Office) Racing Supplies Equipment(Bikes) Accumulated Depreciation 37000 (Being Loan taken from city council) 98130 98130 4.8.2018Kayaks a/c To Cash 2160 (Kayaks purchased in cash) 10.8.2018 Cash ac 3600 11600 11600 Deferred revenue a/c Dr 9100 7500 7500 To Service Revenue 12700 (Being revenue recognized) Liabilities 17.8.2018 Cash a/ Interest payable Income tax payable Deferred revenue 12300 To Service Revenue 12300 14300 37000 37000 24.8.2018 Accounts Payable a/c Dr Equity Common stock Retained Earnings Dividend 1800 1800 Being Accounts Payable paid in cash 44265 .9.2018Prepaid rent a/c Dr 3240 3240 Service revenue (Clinic) 83550 Being rent paid in cash Advertising expense Legal fees expense Miscellaneous expense Salary expense 1040 1300 1500 21.9.2018 Cash a/c 14000 To Service Revenue 14000 (Being services performed for cash) 17.10.2018 Cash a/c 18700 Insurance expense Rent expense Office Supplies expense Racing Supplies expense Interest expense Income tax expense Total To Service Revenue 18700 1080 1590 1930 (Being services for cash 8.12.2018 Miscellaneous expense a/cDr 1500 To Cash 1500 14300 (Being permit purchased in cash) 169475 169475 130190 130190 12.12.2018 Racing Supplies a/c 2200 To Accounts Payable 2200 (Being Racing supplies purchased on account) 15.12.2018 Cash a/c lo Service Revenue ices performed for cash Being serv 16.12.2018 Salary expense a/c Dr 2000 2000 Being sala aid to Victor in cash 31.12.2018 Dividend a/c 3900 3900 Being dividend paid to Tony and Suzie 31.12.2018 No Ent

Adjusting Enteries Date 31.12.2018 Depreciation a/c Dr Debit in Credit in Particulars 7500 To Accumulated Depreciation 7500 (Being depreciation charged to asset) 31.12.2018 nsurance expense a/c Dr To Prepaid Insurance 2220 2220 Being Insurance expense charged to Prepaid insurance 1.12.2018 Rent expense a/c Dr 1080 To Prepaid Rent 1080 (Being rent expense charged to Prepaid Rent 31.12.2018 Office Supplies expense a/c Dr 1590 To Office Supplies 1590 Being Supplies expense charged to Office Supplies. 1800 210 31.12.2018 Interest expense a/c Dr 925 To Interest payable 37000 * 6% * 5/12 (Being Interest expense accrued) 925 31.12.2018Racing Supplies expense a/c Dr 1930 To Racing Supplies Being racing supplies expense charged to racing supplies 2200 270 1930 31.12.2018 Income tax expense a/c Dr 14300 To Income tax payable 14300 (Being income tax accrued) Closing Enteries Date 1.12.2018 Income Summary a/c Debit in Credit in Particulars Dr 35385 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 1040 1300 1500 2000 7500 2220 1080 1590 1930 925 14300 Being expenses closed to Income summa 31.12.2018 Service revenue (Clinic) a/c Dr 83550 To Income Summa 83550 (Being Revenues closed to Income summa 31.12.2018Income Summary a/c Dr 48165 48165 To Retained Earnin Bein ofit transferred to Retained earnin 31.12.2018 Retained Earnings a/c Dr 3900 To Dividends 3900 Being dividends charge to Retained Earnings

Statement of Income For the period ending 31.12.2018 Service revenue (Clinic) Less: Advertising expense Legal fees expense Miscellaneous expense Salary expense Depreciation Insurance expense Rent expense Of 83550 1040 1300 1500 2000 7500 2220 1080 1590 1930 925 14300 fice Supplies expense Racing Supplies expense Interest expense Income tax expense Net Income 35385 48165 Statement of Retained Earnings Net Income Less:Dividends 31.12.2018 48165 3900 44265

Balance sheet As at 31.12.2018 Assets Current Assets Cash Prepaid insurance Prepaid rent Supplies (Office) Racing Supplies Amounts in$ Amounts in $ Liabilities Amounts in $ Amounts in $ Current Liabilities Accounts payable Interest payable Income tax payable 98130 2220 2160 210 270 2200 925 14300 17425 102990 Non Current Liabilities Loan 37000 Non Current Assets 11600 15600 7500 Equipment(Bikes) Kayaks Accumulated Depreciation Total Assets Shareholders Equity Common stock 24000 44265 19700 Retained Earnings 122690 Total Liabilities & Shareholders Eq 68265 122690