Question

Josiah and Harper graduate from college in May 2018 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, 2018, Josiah and Harper organize their new company as a corporation, Awesome Recreation, 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. Josiah and Harper 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 Harper.
Jul.	1		Sell $20,000 of common stock to Josiah.
Jul.	1		Purchase a one-year insurance policy for $4,800 ($400 per month) to cover injuries to participants during outdoor clinics.
Jul.	2		Pay legal fees of $1,500 associated with incorporation.
Jul.	4		Purchase office supplies of $1,800 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 $50 the day of the clinic.
Jul.	8		Purchase 10 mountain bikes, paying $12,000 cash.
Jul.	15		On the day of the clinic, Awesome Recreation receives cash of $2,000 from 40 bikers. Josiah conducts the mountain biking clinic.
Jul.	22		Because of the success of the first mountain biking clinic, Josiah holds another mountain biking clinic and the company receives $2,300.
Jul.	24		Pay for advertising of $700 to a local radio station for a kayaking clinic to be held on August 10. Attendees can pay $100 in advance or $150 on the day of the clinic.
Jul.	30		Awesome Recreation, Inc., receives cash of $4,000 in advance from 40 kayakers for the upcoming kayak clinic.
Aug.	1		Awesome Recreation, Inc., obtains a $30,000 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 $28,000 cash.
Aug.	10		Twenty additional kayakers pay $3,000 ($150 each), in addition to the $4,000 that was paid in advance on July 30, on the day of the clinic. Tony conducts the first kayak clinic.
Aug.	17		Josiah conducts a second kayak clinic, and the company receives $10,500 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 $2,400 ($200 per month).
Sep.	21		Harper conducts a rock-climbing clinic. The company receives $13,200 cash.
Oct.	17		Harper 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 $17,900 cash.
Dec.	1		Josiah 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 $500.
Dec.	5		To help organize and promote the race, Josiah hires his college roommate, John Smith. John Smith 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 $1,200 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 $2,800 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 $20,000 cash from a total of forty teams, and the race is held.
Dec.	16		The company pays John Smith’s salary of $2,000.
Dec.	31		The company pays a dividend of $4,000 ($2,000 to Josiah and $2,000 to Harper).
Dec.	31		Using his personal money, Josiah purchases a diamond ring for $4,500. Josiah surprises Harper by proposing that they get married. She accepts and they get married!

    
The following information relates to year-end adjusting entries as of December 31, 2018.

1. Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $8,000.
2. Six months’ worth of insurance has expired.
3. Four months’ worth of rent has expired.
4. Of the $1,800 of office supplies purchased on July 4, $300 remains.
5. Interest expense on the $30,000 loan obtained from the city council on August 1 should be recorded.
6. Of the $2,800 of racing supplies purchased on December 12, $200 remains.
7. Harper calculates that the company owes $14,000 in income taxes.

1. Unadjusted Trial Balance
2. Adjusting Entries
3. Update T-Accounts

Answer 1

Great Adventures, Inc Journal Entries: Transaction Debit Date Credit 20000 Cash 01-Jul common stock 20000 01-Jul Cash 20000 common stock 20000 4800 01-Jul Prepaid insurance 4800 cash 02-Jul Leagl expenses 1500 1500 cash 04-Jul Office supplies accounts payable 1800 1800 300 07-Jul Advertising expenses cash 300 08-JuEquipment(Mountain bikes) 12000 12000 cash 2000 15-Jul Cash 2000 service revenue Cash 22-Jul 2300 2300 service revenue 24-Jul Advertising expenses 700 cash

30-Jul Cash 4000 Deferred revenue 4000 August 1Cash 30,000 30,000 Notes Payable (Obtain loan from city council 4 Equipment(Kayaks) 28,000 Cash 28,000 (Pay cash for kayaks) 10 Cash 3,000 Service Revenue(Clinic) 3,000 (Receive cash and hold kayak clinic) 10 Deferred Revenue 4,000 Sevice Revenue(Clinc (Receive cash and hold kayak clinic) 4,000 17 Cash 10,500 Sevice Revenue(Clinc) 10,500 (Receive cash and hold kayak clinic) 24 Accounts Payable 1,800 Cash 1,800 (Pay cash on account) 1 Prepaid Rent September 2,400 Cash 2,400 (Pay cash for one-year rental policy) 21 Cash 13,200 Service Revenue(Clinic 13,200 (Receive cash for rock climbing clinic) 17 Cash October 17,900 Service Revenue(Clinic) 17,900 (Receive cash for orienteering clinic) December 8Misc Expense 1,200 1,200 Cash (Pay cash for race permit) 12 Supplies(Racing) 2,800 Accounts Payable (Purchase racing supplies on account) 2,800 15 Cash 20,000 Service Revenue(Race 20,000 (Receive cash for adventure race)

16 Salaries Expense 2,000 Cash 2,000 Pay cash for salary 31 Dividends 4,000 Cash 4,000 Pay cash for dividend Requirement 2 Adjusting Entries December 31Depreciation Expense 8,000 Accumulated Depreciation 8,000 Adjust accumulated depreciation) 31Insurance Expense($400 6 monthsl 2400 Prepaid Insurance 2,400 Adjust prepaid insurance 31 Rent Ex $200 4months) 800 Prepaid Rent 800 Adjust prepaid rent 31Supplies Expense(Office1800-300 1,500 Supplies(Office 1,500 Adjust office supplies) 311 Interest Expense[30000"6%+5/12] 150 Interest Payable 750 Adjust interest payable 311 Supplies Expense(Racing)(2800-20) 2,600 2,600 Adjust racing supplies) 31Income Tax Expense 14,000 Income Tax Payable 4,000 Adjust income tax payable Requirernent 6 Closing Entries December 31 Service RevenuelClinic) 52,900 Service Revenue(Raci 20,000 Income Summar 72,900 35,750 Advertising Expense 1,000 Depreciation Exgense 8,000 Income Tax Expense 14,000 Insurance Expense 2,400 750 Interest Expense Legal Fees Expense 1,500 Miscellaneous Expense 1,200 800 Rent Expense Salaries Expense 2,000 Supplies Expense (Office Supplies Expense Racing) 1,500 2,600 37,150 1 Income Summar Retained earnin 37,150 1 Retained Earnines 4,000 Dividends 4,000

Great Adventures, Inc, Adjusted Trial Balance December 31, 2018 Debit Credit Accounts 84,200 $2,400 $ 1,600 Cash Prepaid Insurance Prepaid Rent Supplies (Office) Supplies (Racing) Equipment (Bikes) Equipment (Kayaks) 300 200 $ 12,000 $28,000 $8,000 $2,800 $ 14,000 Accumulated Depreciation Accounts Payable Income Tax Pavable Interest Payable Notes Payable 750 30,000 Deferred revenue 40,000 Common Stock 4,000 Dividends Service Revenue (Clinic) $52,900 $ 20,000 Service Revenue (Racing) Advertising Expensee $1,000 $8,000 $ 14,000 Depreciation Expense Income Tax Expense $2,400 Insurance Expense Interest Expense 750 $1,500 $1,200 Legal Fees Expense Miscellaneous Expense 800 Rent Expense S2,000 Salaries Expense Supplies Expense (Office) Supplies Expense (Racing) $1,500 $ 2,600 $ 168,450$ 168,450 Totals

Post closing trial balance Cash $84,200$ $2,400$ $1,600$ 300 $ Prepaid Rent Supplies (Office) 200 |$ Supplies (Racing) $ 12,000 $ $ 28,000 $ Equipment (Bikes) Equipment (Kavaks) $8,000 $2,800 $14,000 Accumulated Depreciation Accounts Payable Income Tax Payable Interest Payable 750 $ 30,000 Notes Payable Deferred revenue $ 40,000 Common Stock retained earnings 33,150 $ 128,700$ 128,700 total

Cash Common stock 01-Jul 20000 20000 01-Jul 20000 20000 20000 40000 01-Jul 20000 40000 4800 35200 1500 33700 Service reveue(clinic) 07-Jul 300 33400 15-Jul 2000 2000 4300 21400 2300 12000 2000 10-Aug 15-Jul 23400 3,000 7,300 2300 22-Jul 25700 4,00011,300 17-Aug 10,50021,800 700 25000 4000 30-Jul 21-Sep 13,20035,000 29000 01-Aug30,000 59,000 17,90052,900 17-Dec 31,000 28,000 3,000 Deferred revenue 34,000 44,500 Balance 17-Jan10,500 Credit 1,800 2,400 42,700 30-Jul 4000 4000 01-Sep 10-Aug 4,000 40,300 0 53,500 21-Jan13,200 01-Oct 17,900 71,400 1,200 Accumulated dep $8,000 70,200 ес 15-Jan20,000 90,200 8,000 2,000 88,200 84,200 4,000 Income tax payable $14,000 14,000 Prepaid insurance 31-Dec 4800 01-Jul 4800 2,400 2,400 ес Interest payable Prepaid rent 31-Dec 750 750 01-Sep 2,400 2400 800 1,600 ec Notes payable 01-Aug Supplies(office) $30,000 30,000 1800 1800

01-Dec 300 1,500 Accounts payable 1800 Supplies(racing) 04-Jul 1800 AUg 1,800 12-Dec Dec 2,800 01-Dec 24-Aug 2,800 0 2,600 2,800 2,800 Equipments(Bikes Service reveue(racing) 08-Ju 12000 12000 15-Dec 20,000 Equipments(Kayaks) 28,000 01-Aug 28,000 Advertising expense 07-Jul 300 2 24-Jul 1000 Depriciation expense 31-Dec 8,000 8,000 Income tax expense 14,000 31-De 14,000 Insurance expense 31-Dec 2,400 2,400 Interest expense 31-Dec 750 750 Legal fees expense 02-Ju 1500 1500 Miscellaneous exp 08-Dec1,200 1,200 Rent exp 31-Dec 800 800 Salaries expense 16-Dec 2,000 2,000

supplies expense(office) 31-Dec 1,500 1,500 supplies expense(racing) 31-Dec 2,600 2,600