Question

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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 30,000 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 $15,000 of common stock to Suzie. Jul. 1 Sell $15,000 of common stock to Tony. 1 Purchase a one-year insurance policy for $4,680 ($390 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 $1,200 on account. Jul. 7 Pay for advertising of $210 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $30 on the day of the clinic. Jul. 8 Purchase 10 mountain bikes, paying $19,100 cash. Jul. 15 On the day of the clinic, Great Adventures receives cash of $1,200 from 40 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 $1,550. Jul. 24 Pay $730 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 $31,000 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 $20,400 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 $11,800 cash. Aug. 24 Office supplies of $1,200 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 $4,080 ($340 per month) in advance. Sep. 21 Tony conducts a rock-climbing clinic. The company receives $14,500 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, 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 $540. 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 $1,500 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 $21,600 cash from a total of forty teams, and the race is held. Dec. 16 The company pays Victor's salary of $1,600.

Answer 1

Solution:

Credit GENERAL JOURNAL Date Accounts/ Title 01-07-2021 Cash Common Stock Debit 30,000 30,000) 4,680 01-07-2021 Prepaid Insurance Cash 4,680 1,900 02-07-2021 Legal Expenses Cash 1,900 1,200 04-07-2021 Office Supplies Accounts Payable 1,200 07-07-2021 Advertising Expenses Cash 210 210 19,100 08-07-2021 Equipment (Bikes) Cash 19,100 1,200 15-07-2021 Cash Service Revenue (Clinic) 1,200 1,550 22-07-2021 Cash Service Revenue (Clinic) 1,550 7301 24-07-2021 Advertising Expenses Cash 730 7,700 30-07-2021 Cash Unearned Service Revenue (Clinic) 7,700 31,000 01-08-2021 Cash Notes Payable 31,000 20,400 04-08-2021 Equipment (Kayaks) Cash 20,400

10-08-2021 Cash Unearned Service Revenue (Clinic) Service Revenue (Clinic) 3,200 7,700 10,900 11,800 17-08-2021 Cash Service Revenue (Clinic) 11,800 1,200 24-08-2021 Accounts Payable Cash 1,200 4,080 01-09-2021 Prepaid Rent Cash 4,080 14,500 21-09-2021 Cash Service Revenue (Clinic) 14,500 18,4001 17-10-2021 Cash Service Revenue (Clinic) 18,400 01-12-2021 No Entry Required 05-12-2021 No Entry Required 1,500 08-12-2021 Miscellaneous Expense Cash 1,500 2,200 12-12-2021 Racing Supplies Accounts Payable 2,200 21,600 15-12-2021 Cash Service Revenue (Racing) 21,600 1,600 16-12-2021 Salary Expense Cash 1,600 4,100 31-12-2021 Retained Earnings Dividend Payable 4,100 4,100 31-12-2021 Dividend Payable Cash 4,100 31-12-2021 No Entry Required

ADJUSTED JOURNAL ENTRIES 7,100 31-12-2021 Depreciation Expense Accumulated Depreciation 7,100 2,340 31-12-2021 Insurance Expenses Prepaid Insurance 2,340 1,360 31-12-2021 Rent Expenses Prepaid Rent 1,360 8601 31-12-2021 Office Supplies Expense Office Supplies 860 775 31-12-2021 Interest Expenses Interest Payable (31,000 * 6% * 5/12) 775 2,080 31-12-2021 Racing Supplies Expense Racing Supplies 2,080 13,600 31-12-2021 Income Tax Expense Income Tax Payable 13,600

S. No. Credits 2 Debit si 81,450 2,340 2,720 340 120 19,100 20,400 +002 ADJUSTED TRAIL BALANCE Accounts Name Cash Prepaid Insurance Prepaid Rent Office Supplies Racing Supplies Equipment (Bikes) Equipment (Kayaks) Accumulated Depreciation Accounts Payable Income Tax Payable Interest Payable Notes Payable Common Stock Retained Earnings Service Revenue (Clinic) Service Revenue (Racing) Advertising Expenses Depreciation Expense Income Tax Expense Insurance Expenses Interest Expenses Legal Expenses Miscellaneous Expense Rent Expenses Salary Expense Office Supplies Expense Racing Supplies Expense 7,100 2,200 13,600 775 31,000 30,000 4,100 58,350 21,600 9401 7,100 13,600 2,340 775 1,900 1,500 1,360 1,600 860 25 2,080 1,64,625 1,64,625

Credits S. No. 1 2 POST CLOSING TRIAL BALANCE Accounts Name Cash Prepaid Insurance Prepaid Rent Office Supplies Racing Supplies Equipment (Bikes) Equipment (Kayaks) Accumulated Depreciation Accounts Payable Income Tax Payable Interest Payable Notes Payable Common Stock Retained Earnings Debit si 81,450 2,340 2,720 340 120 19,100 20,400 5 11 7,100 2,200 13,600 775 31,000 30,000 41,795 12 13 14 1,26,470 1,26,470