Question

Tia and Colton 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, Tia and Colton 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. Tia and Colton 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 Colton.
Jul.		1		Sell $15,000 of common stock to Tia.
Jul.		1		Purchase a one-year insurance policy for $5,520 ($460 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 $1,900 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 $60 on the day of the clinic.
Jul.		8		Purchase 10 mountain bikes, paying $15,900 cash.
Jul.		15		On the day of the clinic, Great Adventures receives cash of $3,000 from 50 bikers. Tia conducts the mountain biking clinic.
Jul.		22		Because of the success of the first mountain biking clinic, Tia holds another mountain biking clinic and the company receives $3,450.
Jul.		24		Pay for advertising of $710 to a local radio station for a kayaking clinic to be held on August 10. 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 $46,000 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 $18,200 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. Tia conducts the first kayak clinic.
Aug.	17		Tia conducts a second kayak clinic, and the company receives $11,400 cash.
Aug.	24		Office supplies of $1,900 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 $4,200 ($350 per month).
Sep.	21		Tia conducts a rock-climbing clinic. The company receives $14,400 cash.
Oct.	17		Tia 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 $19,600 cash.
Dec.	1		Tia 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, Tia hires her college buddy, Grocery Store Joe. Grocery Store Joe 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 $1,700 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 $2,900 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 Joe’s salary of $2,000.
Dec.	31		The company pays a dividend of $3,000 ($1,500 to Tia and $1,500 to Colton).
Dec.	31		Using his personal money, Tia purchases a diamond ring for $3,600. Tia surprises Colton by proposing that they get married. Colton 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 $6,820.
2. Six months’ worth of insurance has expired.
3. Four months’ worth of rent has expired.
4. Of the $1,900 of office supplies purchased on July 4, $370 remains.
5. Interest expense on the $46,000 loan obtained from the city council on August 1 should be recorded.
6. Of the $2,900 of racing supplies purchased on December 12, $190 remains.
7. Colton calculates that the company owes $13,200 in income taxes.

REQUIREMENTS:

1. Record each of the transactions listed above in the ‘General Journal’ tab (these are shown as items 1-27). From those transactions, populate the ‘General Ledger’ and review the ‘Trial Balance’ tab to see the effect of the transactions on the account balances.
2. Record the adjusting entries in the ‘General Journal’ tab (these are shown as items 28-34). Update your ‘General Ledger’.
3. Review the adjusted ‘Trial Balance’ as of December 31, 2018.
4. Prepare an income statement for the period ended December 31, 2018, in the ‘Income Statement’ tab.
5. Prepare a classified balance sheet as of December 31, 2018, in the ‘Balance Sheet’ tab.
6. Record the closing entries in the ‘General Journal’ tab (these are shown as items 35-37). Update your ‘General Ledger’.

Answer 1