Question

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 31,000 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 $15,500 of common stock to Suzie. Jul. 1 Sell $15,500 of common stock to Tony. Jul. 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 $1,700 associated with incorporation. Jul. 4 Purchase office supplies of $1,400 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. 7 Pay fo 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 $2,000 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 $2,500. Jul. 24 Pay $820 to a local radio station for advertising to appear immediately. A kayaking clinic will be held on August 10, and attendees can pay $120 in advance or $170 on the day of the clinic. sh of $8,400 in advance from 70 kayakers for the upcoming kayak clinic. Aug. 1 Great Adventures obtains a $32,000 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 $18,000 cash. Aug. 10 Twenty additional kayakers pay $3,400 ($170 each), in addition to the $8,400 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 $11,900 cash. 24 Office supplies of $1,400 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 $4,320 ($360 per month) in advance. Sep. 21 Tony conducts a rock-climbing clinic. The company receives $14,000 cash. rienteering clinic. Participants practice how to understand a topographical map, read an altimeter, use a compass, and orient through heavily wooded areas. The company receives $19,100 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 $520. Dec. 5 To help organize and promote the 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 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 $20,800 cash from a total of forty teams, and the race is held. Dec. 16 The company pays Victor's salary of $2,800. The company pays a dividend of $4,200 ($2,100 to Tony and $2,100 to Suzie). Dec. 31 Using his personal money, Tony purchases a diamond ring for $5,400. Tony surprises Suzie by proposing that they get married. Suzie accepts and they get married!

Answer 1

Great Adventures Inc. Journal entries No. Date Accounts 1 1-Jul Cash Common Stock Credit Calculation Debit 15,500 15,500 15,500 1-Jul Cash Common Stock 15,500 3 5,760 1-Jul Prepaid Insurance Cash 5,760 4 1,700 2-Jul Legal fees expense Cash 1,700 1,400 4-Jul Supplies (Office) Accounts Payable 1,400 230 7-Jul Advertising expense Cash 230 7 12,200 8-Jul Equipment (Bikes) Cash 12,200 8 2,000 15-Jul Cash Service revenue (Clinic) 2,000 9 2,500 22-Jul Cash Service revenue (Clinic) 2,500 10 820 24-Jul Advertising expense Cash 820 11 8,400 30-Jul Cash Deferred Revenue 8,400 32,000 121-Aug Cash Notes Payable 32,000 13 18,000 4-Aug Equipment (Kayaks) Cash 18,000 14 10-Aug Cash Deferred Revenue Service revenue (Clinic) 3,400 8,400 11,800 15 11,900 17-Aug Cash Service revenue (Clinic) 11,900 16 1,400 24-Aug Accounts Payable Cash 1,400 17 1-Sep Prepaid Rent 4,320 Cash 4,320 18 14,000 21-Sep Cash Service revenue (Clinic) 14,000 19 19,100 17-Oct Cash Service revenue (Clinic) 19,100 20 1-Dec No entry 21 5-Dec No entry 22 1,500 8-Dec Misc expense Cash 1,500 23 2,200 12-Dec Supplies (Racing) Accounts Payable 2,200 24 20,800 15-Dec Cash Service revenue (Racing) 20,800 25 2,800 16-Dec Salary expense Cash 2,800 26 4,200 31-Dec Dividends Cash 4,200 27 31-Dec No entry Credit Calculation Adjusting entries No. Date Accounts 28 31-Dec Depreciation expense Accumulated Depreciation Debit 6,040 6,040 29 2,880 =5,760/12*6 31-Dec Insurance expense Prepaid Insurance 2,880 30 1,440 -4,320/12*4 31-Dec Rent expense Prepaid Rent 1,440 31 31-Dec Supplies (Office) expense Supplies (Office) 1,130 =1,400-270 1,130 32 800 =32,000*6%*5/12 31-Dec Interest expense Interest Payable 800 33 1,950 =2,200-250 31-Dec Supplies (Racing) expense Supplies (Racing) 1,950 34 13,300 31-Dec Income tax expense Income tax payable 13,300 Credit Calculation Closing entries No. Date Accounts 35 31-Dec Service revenue (Clinic) Service revenue (Racing) Retained Earnings Debit 61,300 20,800 82,100 36 34,590 31-Dec Retained Earnings Advertising expense Legal fees expense Misc expense Salary expense Depreciation expense Insurance expense Rent expense Supplies (Office) expense Supplies (Racing) expense Interest expense Income tax expense 1,050 1,700 1,500 2,800 6,040 2,880 1,440 1,130 1,950 800 13,300 37 4,200 31-Dec Retained Earnings Dividends 4,200

Credit Date Credit Date Credit Date Credit Debit Date Prepaid Insurance 5,760 31-Dec Debit Date Prepaid Rent 4,320 31-Dec Debit Date Supplies (Office) -Jul 1,400 31-Dec 1-Jul 2,880 1-Sep 1,440 4 1,130 Great Adventures Inc. T Accounts Date Debit Date Cash 1-Jul 15,500 1-Jul 1-Jul 15,500 2-Jul 15-Jul 2,000 7-Jul 22-Jul 2,500 8-Jul 30-Jul 8,400 24-Jul 1-Aug 32,000 10-Aug 3,400 24-Aug 17-Aug 11,900 1-Sep 21-Sep 14,000 8-Dec 17-Oct 19,100 16-Dec 15-Dec 20,800 31-Dec 4-Aug 5,760 1,700 230 12,200 820 18,000 1,400 4,320 1,500 2,800 4,200 Bal. Bal. 2,880 Bal. 2,880 Bal. 92,170 Supplies (Racing) 2,200 31-Dec Equipment (Bikes) 12,200 Equipment (Kayaks) 18,000 Accum. Depreciation 31-Dec 12-Dec 1,950 8 -Jul 4-Aug 6,040 Bal. Bal. Bal. 6,040 250 Accounts Payable 1,400 4-Jul 12-Dec 12,200 Deferred Revenue 8,400 30-Jul 18,000 Interest Payable 31-Dec Bal. Income taxes payable 31-Dec 24-Aug 10-Aug 8,400 800 13,300 1,400 2,200 2,200 Bal. 800 13,300 Bal. Notes Payable 1-Aug Bal. Dividends 4,200 31-Dec Common Stock 1-Jul 1-Jul Bal. Retained Earnings 34,590 31-Dec 4,200 32,000 31-Dec 82,100 15,500 15,500 31-Dec 31-Dec 4,200 32,000 31,000 Bal. Bal. 43,310 Bal. Service revenue (Racing) 16-Dec Legal fees expense 1,700 20,800 Advertising expense 230 820 7-Jul 24-Jul 2-Jul Bal. Service revenue (Clinic) 15-Jul 22-Jul 10-Aug 17-Aug 21-Sep 31-Dec 61,300 17-Oct 2,000 2,500 11,800 11,900 14,000 19,100 31-Dec 20,800 31-Dec 1,050 31-Dec 1,700 - Bal. Bal. Misc expense 1,500 31-Dec Bal. Salary expense 2,800 31-Dec Bal. Depreciation expense 31-Dec 6,040 31-Dec 8-Dec 16-Dec 31-Dec Insurance expense 2,880 31-Dec 1,500 2,800 6,040 2,880 Bal. Bal. Bal. Supplies (Office) expense 31-Dec 1,130 31-Dec Rent expense 1,440 31-Dec Bal. Supplies (Racing) expense 31-Dec 1,950 31-Dec 31-Dec 31-Dec Interest expense 800 31-Dec 1,440 1,130 1,950 800 Bal. Bal. 31-Dec Income tax expense 13,300 31-Dec 13,300 Bal.

Unadjusted TB As of Dec Debit Credit 92,170 5,760 4,320 1,400 2,200 12,200 18,000 Post closing TB As of Dec Debit Credit 92,170 2,880 2,880 Adjusted TB As of Dec Debit Credit 92,170 2,880 2,880 270 250 12,200 18,000 6,040 2,200 270 250 12,200 18,000 6,040 2,200 2,200 Great Adventures Inc. Trial Balance Accounts Cash Prepaid Insurance Prepaid Rent Supplies (Office) Supplies (Racing) Equipment (Bikes) Equipment (Kayaks) Accumulated Depreciation Accounts Payable Deferred Revenue Interest Payable Income taxes payable Notes Payable Common stock Retained Earnings Dividends Service revenue (Clinic) Service revenue (Racing) Advertising expense Legal fees expense Misc expense Salary expense Depreciation expense Insurance expense Rent expense Supplies (Office) expense Supplies (Racing) expense Interest expense Income tax expense Totals 800 13,300 32,000 31,000 32,000 31,000 800 13,300 32,000 31,000 43,310 4,200 4,200 61,300 20,800 61,300 20,800 1,050 1,700 1,500 2,800 1,050 1,700 1,500 2,800 6,040 2,880 1,440 1,130 1,950 800 13,300 167,440 147,300 147,300 167,440 128,650 128,650

61,300 20,800 82,100 Great Adventures Inc. Income Statement For period ending Dec 31 Revenues Service revenue (Clinic) Service revenue (Racing) Total Revenues Expenses: Advertising expense Legal fees expense Misc expense Salary expense Depreciation expense Insurance expense Rent expense Supplies (Office) expense Supplies (Racing) expense Interest expense Total Expenses Net Income before income taxes Income taxes Net Income 1,050 1,700 1,500 2,800 6,040 2,880 1,440 1,130 1,950 800 21,290 60,810 13,300 47,510 Retained Earnings Statement For period ending Dec 31 Beginning balance Net Income Less Dividends Retained Earnings 47,510 4,200 43,310

Great Adventures Inc. Statement of Stockholders Equity For period ending Dec 31 Common Stock Retained Earnings Total Equity 31,000 Beginning balance Issue of common stock Net Income Dividends Ending Balance 47,510 (4,200) 43,310 31,000 47,510 (4,200) 74,310 31,000

Great Adventures Inc. Balance Sheet As of Dec 31 Assets Current Assets: Cash Prepaid Insurance Prepaid Rent Supplies (Office) Supplies (Racing) Total Current Assets Liabilities Current Liabilities: 92,170 Accounts Payable 2,880 Interest Payable 2,880 Income taxes payable 270 Total Current Liabiltiies 250 98,450 Non-Current Liabilities: Notes Payable Total Liabilities 2,200 800 13,300 16,300 32,000 48,300 Long-term Assets: Equipment (Bikes) Equipment (Kayaks) Accumulated Depreciation Total Long-term Assets Stockholders Equity: 12,200 Common stock 18,000 Retained Earnings (6,040) 24,160 Total Stockholders Equity 31,000 43,310 74,310 Total Assets 122,610 Total Liabilities & Stockholders Equity 122,610