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 34,000 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 1 sell $17,000 of connon stook to Sunie. Jul. 1 Bell 417,000 of connes stock to Tony. Jal. 1 Purehase a one-year in erance policy for $5,040 (8420 per month) to cover injuries to participants during outdoor clinics. Jal. 2 Pay legal fees of $1,600 associated with incorporation. Jl. Parehase office supplies of $1,800 on account. 7 Pay for advertising of 1330 to local newspaper for an upcoming mountain bikin elinie to be held on July 15. Attendees will be charged $30 on the day of the clinic. Jul. 8 Purchase 10 mountain bikes, paying $15,600 cash. Jul. 15 on the day of the elinie, Great Adventures receives cash of $2,400 from 10 bikers. Tony conduct the mountain biking elinie. Jal. 22 Decuse of the recess of the first mountain biking elinie, Tony holds another mountain biking clinic and the company receives 32,750. Jul. 24 Tay $750 to a local radio station for advertising to appear inmediately. A kayaking elinie will be held on August 10, and attendees can pay $120 in advance or $170 on the day of the elinie. Jul. 30 Great Adventures receives each of 67,200 in advance from kayakers for the upcoming kayak elinie. Aug. 1 Great Adventures obtains a 547,000 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 annual interest is due each year on July 31. Mag. The company purchases 14 kayaks, paying $22,000 cash. Aug. 10 Twenty additional kayakers pay $3,400 (5170 cach), in addition to the $7,200 that was paid in advance on July 30, on the day of the clinie. Tony conducts the first kayak elinie. Aug. 17 Tony conducta a second kayak elinie, and the company receives $12.500 cash. hug. 24 orice supplies of $1,60 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 renta storage shed for one year, paying $3,480 ($290 per month) in advance. Sep. 21 Tony conducte a rock-climbing cline. The company receives $14,800 cash. Oct. 17 Tony conducts an orienteering clinie. Participants practice how to understand a topographical map. read an altimeter, we 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 team will race fron checkpoint to checkpoint using a combination of mountain biking, kayaking, orienteerin trail running, and rock-climbing skills. The first tean in each category to complete all checkpoints in order wine. The entry fee for each team is $500. Dec. 5 To help organize and promote the race, Tony hires his college roommate, Victor. Vietor will be paid 530 in salary for each team that competes in the race. His salary will be paid after the race. Dee. • The company pays $1,500 to purchase a permit from a state park where the race will be held. The amount to recorded as a miscellaneous expense. Dec. 12 The company purchases racing supplies for $2,100 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. Dee. 15 The company receives 620,000 cash from a total of forty team, and the race is held. Dec. 16 The company payu Vieter's salary of $1,200. Dec. 31 The company pays a dividend of 1),200 ($1,600 to Tony and $1.600 to Susie). Dec. 31 Using his personal money. Tony purchases a diamond ring for $5,000. Tony surprises Buste by proposing that they get married. Burie accepts and they get married The following information relates to year end adjusting entries as of December 31, 2021 a. Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $7,600. b. Six months of the one year insurance policy purchased on July 1 has expired. c. Four months of the one year rental agreement purchased on September has expired. d. Of the $1.800 of office supplies purchased on July 4, 5210 remains e. Interest expense on the $47,000 loan obtained from the city council on August 1 should be recorded f. Of the $2,300 of racing supplies purchased on December 12. $130 remains. 9. Suzie calculates that the company owes $14100 in income taxes < Prev 5

Answer 1

Solution:

GREAT ADVENTURE INC. Income Statement For the year ended December 31, 2021 $62,150 $20,000 $82,150 Revenue Service Revenue (Clinic) Service Revenue (Racing) Expenses: Advertising Expense Depreciation Expense Insurance Expense Interest Expense Legal Expense Miscellaneous Expense Rent Expense Salary Expense Office Supplies Expense Racing Supplies Expense Income Tax Expense Total Expenses $1,060 $7,600 $2,520 $1,175 $1,600 $1,500 $1,160 $1,200 $1,590 $2,170 $14,100 $35,675 Net Income $46,475

GREAT ADVENTURE INC. Income Statement For the year ended December 31, 2021 Total Common Retained stockholders' Stock Earnings equity Beginning Balance $0 $0 $0 Common stock issued $34,000 $34,000 Net Income $46,475 $46,475 Dividends $3,200 -$3,200 Totals $34,000 $43,275 $77,275

Assets Current Assets: Cash Prepaid Insurance Prepaid Rent Office Supplies Racing Supplies Total Current Assets Long-term assets: Equipment (Bikes) Equipment (Kayaks) Less: Accumulated Depreciation GREAT ADVENTURE INC. Balance Sheet December 31, 2021 Liabilities Current Liabilities: $ 1,06,670 Accounts Payable $ 2,520 Income Tax Payable $ 2,320 Interest Payable $ 210 Total Current Liabilities $ 130 Notes Payable $ 1,11,850 Total Liabilities Stockholders' Equity $ 15,600 Common Stock $ 22,000 Retained Earnings $ -7,600 $ 30,000 Total Stockholders' Equity $ $ $ $ $ $ 2,300 14,100 1,175 17,575 47,000 64,575 $ $ 34,000 43,275 $ 77,275 Total Assets $ 1,41,850 Total Liabilities & Stockholders' Equity $ 1,41,850

Workings:

S.No. Credit GENERAL JOURNAL Date Accounts/ Title Jul-01 Cash Common Stock Debit 17,000 1 $ $ 17,000 2 $ 17,000 Jul-01 Cash Common Stock $ 17,000 3 $ 5,040 Jul-01 Prepaid Insurance Cash $ 5,040 4 $ 1,600 Jul-02 Legal Expenses Cash $ 1,600 5 $ 1,800 Jul-04 Office Supplies Accounts Payable $ 1,800 6 $ 330 Jul-07 Advertising Expenses Cash $ 330 7 $ Jul-08 Equipment (Bikes) Cash 15,600 $ 15,600 8 $ $ 2,400 Jul-15 Cash Service Revenue (Clinic) $ $ 2,400 9 $ 2,750 Jul-22 Cash Service Revenue (Clinic) $ 2,750 10 $ 730 Jul-24 Advertising Expenses Cash $ 730

11 $ 7,200 Jul-30 Cash Deferred Revenue (Clinic) $ 7,200 12 $ 47,000 Aug-01 Cash Notes Payable $ 47,000 13 $ 22,000 Aug-04 Equipment (Kayaks) Cash $ 22,000 Aug-10 Cash Deferred Revenue (Clinic) Service Revenue (Clinic) $ $ 3,400 7,200 14 $ 10,600 15 $ 12,500 Aug-17 Cash Service Revenue (Clinic) $ 12,500 16 $ 1,800 Aug-24 Accounts Payable Cash $ 1,800 17 $ 3,480 Sep-01 Prepaid Rent Cash $ 3,480 18 $ 14,800 Sep-21 Cash Service Revenue (Clinic) $ 14,800

19 $ 19,100 Oct-17 Cash Service Revenue (Clinic) $ $ 19,100 20 Dec-01 No Entry Required 21 Dec-05 No Entry Required 22 $ 1,500 Dec-08 Miscellaneous Expense Cash $ 1,500 23 $ 2,300 Dec-12 Racing Supplies Accounts Payable $ 2,300 24 $ 20,000 Dec-15 Cash Service Revenue (Racing) $ 20,000 25 $ 1,200 Dec-16 Salary Expense Cash $ 1,200 26 $ 3,200 Dec-31 Dividends Cash $ 3,200 27 Dec-31 No Entry Required

ADJUSTED JOURNAL ENTRIES Accounts/ Title S.No. Date Debit Credit 28 $ 7,600 Dec-31 Depreciation Expense Accumulated Depreciation $ 7,600 29 $ 2,520 Dec-31 Insurance Expenses Prepaid Insurance $ 2,520 30 $ 1,160 Dec-31 Rent Expenses Prepaid Rent $ 1,160 31 $ $ 1,590 Dec-31 Office Supplies Expense Office Supplies $ 1,590 32 $ $ 1,175 Dec-31 Interest Expenses Interest Payable ($47,000 * 6% * 5/12) $ 1,175 33 $ 2,170 Dec-31 Racing Supplies Expense Racing Supplies $ $ 2,170 34 $ $ 14,100 Dec-31 Income Tax Expense Income Tax Payable $ 14,100

S. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 ADJUSTED TRAIL BALANCE Accounts Name Debit $ Credit $ Cash $ 1,06,670 Prepaid Insurance $ 2,520 Prepaid Rent $ 2,320 Office Supplies $ 210 Racing Supplies $ 130 Equipment (Bikes) $ 15,600 Equipment (Kayaks) $ 22,000 Accumulated Depreciation $ 7,600 Accounts Payable $ 2,300 Income Tax Payable $ 14,100 Interest Payable $ 1,175 Notes Payable $ 47,000 Common Stock $ 34,000 Dividends $ 3,200 Service Revenue (Clinic) $ 62,150 Service Revenue (Racing) $ 20,000 Advertising Expenses $ 1,060 Depreciation Expense $ 7,600 Income Tax Expense $ 14,100 Insurance Expenses $ 2,520 Interest Expenses $ 1,175 Legal Expenses $ 1,600 Miscellaneous Expense $ 1,500 Rent Expenses $ 1,160 Salary Expense $ 1,200 Office Supplies Expense $ 1,590 Racing Supplies Expense $ 2,170 $ 1,88,325 $ 1,88,325 14 $ 15 16 17 18 19 20 21 22 23 24 25 26 27