Question

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 27,000 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 $13,500 of common stock to Suzie.
Jul.		1		Sell $13,500 of common stock to Tony.
Jul.		1		Purchase a one-year insurance policy for $4,800 ($400 per month) to cover injuries to participants during outdoor clinics.
Jul.		2		Pay legal fees of $2,000 associated with incorporation.
Jul.		4		Purchase office supplies of $1,700 on account.
Jul.		7		Pay for advertising of $290 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 $10,500 cash.
Jul.		15		On the day of the clinic, Great Adventures receives cash of $3,600 from 60 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 $3,950.
Jul.		24		Pay $740 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 $43,000 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 $20,900 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 $1,700 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 $15,100 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 $19,300 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 $670.
Dec.		5		To help organize and promote the race, Tony hires his college roommate, Victor. Victor 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 $1,500 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 $2,100 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.
Dec.		15		The company receives $26,800 cash from a total of forty teams, and the race is held.
Dec.		16		The company pays Victor’s salary of $2,000.
Dec.		31		The company pays a dividend of $5,000 ($2,500 to Tony and $2,500 to Suzie).
Dec.		31		Using his personal money, Tony purchases a diamond ring for $5,000. 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.

1. Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $7,100.
2. Six months’ of the one-year insurance policy purchased on July 1 has expired.
3. Four months of the one-year rental agreement purchased on September 1 has expired.
4. Of the $1,700 of office supplies purchased on July 4, $340 remains.
5. Interest expense on the $43,000 loan obtained from the city council on August 1 should be recorded.
6. Of the $2,100 of racing supplies purchased on December 12, $250 remains.
7. Suzie calculates that the company owes $14,400 in income taxes.

1. Record transactions from July 1 through December 31. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Record adjusting entries as of December 31, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. Post transactions from July 1 through December 31 and adjusting entries on December 31 to T-accounts.
4. Prepare an adjusted trial balance as of December 31, 2021. For the period July 1 to December 31, 2021, prepare an income statement, statement of stockholders’ equity and classified balance sheet.
5. Record closing entries as of December 31, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
6. Post the closing entries of retained earnings to the T-account.
7. Prepare a post-closing trial balance as of December 31, 2021.

Answer 1

Requirement-1: Record transactions from July 1 through December 31

Date	Account Title and Explanation	Debit $	Credit $
July 1	Cash	13,500
	Common Stock		13,500
	(To record issue of common stock to Suzie)
July 1	Cash	13,500
	Common Stock		13,500
	(To record issue of common stock to Tony)
July 1	Prepaid Insurance	4,800
	Cash		4,800
	(To record purchase of insurance policy)
July 2	Legal fees	2,000
	Cash		2,000
	(To record legal fees paid in cash)
July 4	Office Supplies	1,700
	Accounts Payable		1,700
	(To record office supplies purchased on account)
July 7	Advertising expense	290
	Cash		290
	(To record advertising expense paid)
July 8	Mountain Bikes	10,500
	Cash		10,500
	(To record mountain bikes purchased for cash)
July 15	Cash (Biking)	3,600
	Service Revenue		3,600
	(To record cash collected from mountain bike attendees)
July 22	Cash (Biking)	3,950
	Service Revenue		3,950
	(To record cash collected from mountain bike attendees)
July 24	Advertising expense	740
	Cash		740
	(To record advertising expense paid)
July 30	Cash	7,700
	Unearnes Kayaking Service		7,700
	(To record advance received for kayaking service)
Aug.1	Cash	43,000
	Loan		43,000
	(To record loan taken from city council)
Aug.4	Kayaks	20,900
	Cash		20,900
	(To record kayaks purchased for cash)
Aug.10	Cash	3,200
	Deferred Revenue	7,700
	Service Revenue		10,900
	(To record revenue recognized)
Aug.17	Cash	11,800
	Service Revenue		11,800
	(To record cash collected)
Aug.24	Accounts Payable	1,700
	Cash		1,700
	(To record accounts payable paid in cash)
Sep.1	Prepaid Rent	2,760
	Cash		2,760
	(To record rent paid)
Sep.21	Cash	15,100
	Service Revenue		15,100
	(To record services performed for cash)
Oct.17	Cash	19,300
	Service Revenue		19,300
	(To record services performed for cash)
Dec.1	No Entry
Dec.5	No Entry
Dec.8	Miscellaneous expense	1,500
	Cash		1,500
	(To record permit purchased for cash)
Dec.12	Racing Supplies	2,100
	Accounts Payable		2,100
	(To record racing supplies purchased on account)
Dec.15	Cash	26,800
	Service revenue		26,800
	(To record Services performed for cash)
Dec.16	Salary expense	2,000
	Cash		2,000
	(To record salary paid to Victor in cash)
Dec.31	Dividends	5,000
	Cash		5,000
	(To record dividend paid to Tony and Suzie)

Requirement-1: Adjusting Entries as of December 31, 2021

Date	Account Title and Explanation	Debit $	Credit $
Dec.31	Depreciation	7,100
	Accumulated depreciation		7,100
	(To record depreciation charged to asset)
Dec.31	Insurance expense	2,400
	Prepaid insurance		2,400
	(To record insurance expense charged to prepaid insurance)
Dec.31	Rent expense (230*4)	920
	Prepaid rent		920
	(To record rent expense charged to prepaid rent)
Dec.31	Office supplies expense (1700-340)	1,360
	Office supplies		1,360
	(To record supplies expense charged to office supplies)
Dec.31	Interest expense (43,000*6%*5/12)	1,075
	Interest payable		1,075
	(To record interest expense accrued)
Dec.31	Racing supplies expense (2,100-250)	1,850
	Racing supplies		1,850
	(To record supplies expense charged to racing supplies)
Dec.31	Income tax expense	14,400
	Income tax payable		14,400
	(To record income tax accrued)

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