Question

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 32,000 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 $16,000 of common stock to Suzie. Jul. 1 Sell $16,000 of common stock to Tony. Jul. 1 Purchase a one-year insurance policy for $6,000 ($500 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 $1,500 on account. Jul. 7 Pay for advertising of $200 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $70 on the day of the clinic. Jul. 8 Purchase 10 mountain bikes, paying $10,500 cash. Jul. 15 On the day of the clinic, Great Adventures receives cash of $4,900 from 70 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 $5,250. Jul. 24 Pay $660 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 $6,600 in advance from 60 kayakers for the upcoming kayak clinic. Aug. 1 Great Adventures obtains a $38,000 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 $21,600 cash. Aug. 10 Twenty additional kayakers pay $3,200 ($160 each), in addition to the $6,600 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 $11,500 cash. Aug. 24 Office supplies of $1,500 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 $2,760 ($230 per month) in advance. Sep. 21 Tony conducts a rock-climbing clinic. The company receives $14,600 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 $19,400 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 $570. Dec. 5 To help organize and promote the race, Tony hires his college roommate, Victor. Victor will be paid $40 in salary for each team that competes in the race. His salary will be paid after the race. Dec. 8 The company pays $1,000 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 $22,800 cash from a total of forty teams, and the race is held. Dec. 16 The company pays Victor’s salary of $1,600. Dec. 31 The company pays a dividend of $3,200 ($1,600 to Tony and $1,600 to Suzie). Dec. 31 Using his personal money, Tony purchases a diamond ring for $5,200. 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. Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $8,100. Six months’ of the one-year insurance policy purchased on July 1 has expired. Four months of the one-year rental agreement purchased on September 1 has expired. Of the $1,500 of office supplies purchased on July 4, $210 remains. Interest expense on the $38,000 loan obtained from the city council on August 1 should be recorded. Of the $2,300 of racing supplies purchased on December 12, $220 remains. Suzie calculates that the company owes $13,200 in income taxes. rev: 02_05_2019_QC_CS-157044 Great Adventures Problem AP3-1 Part 4 Prepare an adjusted trial balance as of December 31, 2021.

Answer 1

Great Adventures Journal Enteries Trial Balance Debit in $ Credit in $ Particulars For the period ending 31.7.2021 Date 1.7.2018 Cash a/c Debit in $ Credit in $ Particulars Dr. 32000 To Common Stock 32000 Cash 29890 (Being Equal no. of stock issued to Tony and Suzie) Prepaid Insurance 6000 Office Supplies 1500 1.7.2018 Prepaid Insurance a/c Equipment(Bikes) Accounts Payable 10500 Dr. 6000 To Cash 6000 1500 (Being Insurance paid in cash) Common Stock 32000 Mountain Biking Service 10150 2.7.2018 Legal Fees a/c Unearned Kayaking Service Dr. 1500 6600 To Cash Legal Fees 1500 1500 (Being Legal Fees paid in Cash) Advertising Expense 860 Totals 50250 50250 Office Supplies a/c 4.7.2018 Dr. 1500 To Accounts Payable 1500 (Being Supplies purchased on account) 7.7.2018 Advertising Expense a/c Dr. 200 To Cash (Being advertising expense paid to newspaper) Mountain Bikes a/c 8.7.2018 Dr. 10500 To Cash 10500 (Being 10 Mountain Bikes purchased for cash) 15.7.2018 Cash a/c 4900 Dr. To Mountain Biking Service 4900 (Being cash collected from Mountain Bike attendees) 22.7.2018 Cash a/c Dr. 5250 To Mountain Biking Service 5250 (Being cash collected from Mountain Bike attendees) 24.7.2018 Advertising Expense a/c Dr. 660 To Cash 660 (Being advertising expense paid to local radio station) 30.7.2018 Cash a/c Dr. 6600 To Unearned Kayaking Service 6600 (Being Advance received for Kayaking service)

Great Adventures Journal Enteries Particulars 1.8.2018 Cash a/c Debit in Credit in $ Date Dr 38000 To Loan 38000 (Being Loan taken from city council) Kayaks a/c То Cash (Kayaks purchased in cash) 21600 4.8.2018 Dr 21600 10.8.2018 Cash a/c Dr 3200 Deferred revenue a/c Dr. 6600 To Service Revenue 9800 (Being revenue recognized) 17.8.2018 Cash a/c Dr 11500 11500 To Service Revenue 24.8.2018 Accounts Payable a/c Тo Cash Dr. 1500 1500 (Being Accounts Payable paid in cash) Prepaid rent a/c То Cash 2760 1.9.2018 Dr. 2760 (Being rent paid in cash) 21.9.2018 Cash a/c Dr 14600 To Service Revenue 14600 (Being services performed for cash) 17.10.2018 Cash a/c 19400 Dr 19400 To Service Revenue (Being services performed for cash) 1000 8.12.2018 Miscellaneous expense a/c Dr. To Cash 1000 (Being permit purchased in cash) 12.12.2018 Racing Supplies a/c 2300 Dr To Accounts Payable 2300 (Being Racing supplies purchased on account) 15.12.2018 Cash a/c Dr 22800 22800 To Service Revenue (Being services performed for cash) 16.12.2018 Salary expense a/c Dr. То Cash 1600 1600 (Being salary paid to Victor in cash) 31.12.2018 Dividend a/c Dr. 3200 3200 To Cash |(Being dividend paid to Tony and Suzie) 31.12.2018 No Entry

Adjusting Enteries Particulars Debit in $ Credit in $ Date 31.12.2018 Depreciation a/c Dr. 8100 To Accumulated Depreciation 8100 (Being depreciation charged to asset) 31.12.2018 Insurance expense a/c Dr. 3000 To Prepaid Insurance 3000 (Being Insurance expense charged to Prepaid insurance) 31.12.2018 Rent expense a/c Dr. 920 To Prepaid Rer 0 (Being rent expense charged to Prepaid Rent) 230 x4 920 31.12.2018 Office Supplies expense a/c Dr. 1290 To Office Supplies 1290 (Being Supplies expense charged to Office Supplies.) (1500 210) 31.12.2018 Interest expense a/c Dr. 950 To Interest payable 950 38000 6% 5/12 (Being Interest expense accrued) 31.12.2018 Racing Supplies expense a/c Dr. 2080 To Racing Supplies 2080 (Being racing supplies expense charged to racing supplies) (2300 220) 31.12.2018 Income tax expense a/c Dr. 13200 To Income tax payable 13200 (Being income tax accrued)

Adjusted Trial Balance As at 31.12.2021 Adjusted Debit in $ Credit in $ Particulars Assets Cash 107730 Prepaid insurance 3000 Prepaid rent 1840 Supplies (Office) Racing Supplies 210 220 Equipment(Bikes) 10500 Accumulated Depreciation Kayaks Liabilities 21600 Accounts payable 2300 Interest payable 950 Income tax payable 13200 Deferred revenue 0 Loan 38000 Equity 32000 Common stock Retained Earnings Dividend 3200 Revenue Service revenue (Clinic) 88250 Expenses Advertising expense Legal fees expense 860 1500 Miscellaneous expense 1000 Salary expense 1600 Depreciation 8100 Insurance expense 3000 Rent expense 920 Office Supplies expense 1290 Racing Supplies expense 2080 Interest expense 950 Income tax expense 13200 Total 182800 182800 0