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.

Jul.

1

Sell $17,000 of common stock to Suzie.
Jul.

1

Sell $17,000 of common stock to Tony.
Jul.

1

Purchase a one-year insurance policy for $4,920 ($410 per month) to cover injuries to participants during outdoor clinics.
Jul.

2

Pay legal fees of $1,100 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 $60 on the day of the clinic.
Jul.

8

Purchase 10 mountain bikes, paying $12,400 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 $4,150.
Jul.

24

Pay $630 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.
Jul.

30

Great Adventures receives cash of $7,200 in advance from 60 kayakers for the upcoming kayak clinic.
Aug.

1

Great Adventures obtains a $39,000 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 $21,000 cash.
Aug.

10

Twenty additional kayakers pay $3,400 ($170 each), in addition to the $7,200 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 $11,400 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 $3,240 ($270 per month) in advance.
Sep.

21

Tony conducts a rock-climbing clinic. The company receives $13,800 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 $19,600 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 $600.
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 $1,100 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 $2,300 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 $24,000 cash from a total of forty teams, and the race is held.
Dec.

16

The company pays Victor’s salary of $1,600.
Dec.

31

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 $5,200. 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.

Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $6,680.

Six months’ of the one-year insurance policy purchased on July 1 has expired.

Four months of the one-year rental agreement purchased on September 1 has expired.

Of the $1,200 of office supplies purchased on July 4, $200 remains.

Interest expense on the $39,000 loan obtained from the city council on August 1 should be recorded.

Of the $2,300 of racing supplies purchased on December 12, $240 remains.

Suzie calculates that the company owes $14,600 in income taxes

Answer 1

GREAT ADVENTURE INC
General Journal for the period July1 - December31 , 2021
Date	Account & description	Debit	Credit
2021
July.1	Cash	34000
	Common stock (Tom)		17000
	Common stock (Suzie)		17000
	(Issue of 17,000 shares &$1 each to Tony and Suize)
July1.	Prepaid insurance	4920
	Cash		4920
	(One year insurance policy against injuries)
July.2	Legal expenses	1100
	Cash		1100
	(Legal fee for incorporation)
July.4	Office supplies	1200
	Cash		1200
	(Purchase of office supplies)
July.7	Advertising expenses	210
	Cash		210
	(Payment for advertising in newspaper)
July.8	Equipment	12400
	Cash		12400
	(Purchase of 10 mountain bikes)
July.15	Cash	3600
	Service revenue		3600
	(Cash received for mountain biking clinic)
Jul.22	Cash	4150
	Service revenue		4150
	(Cash received for mountain biking clinic)
July.24	Advertising expenses	630
	Cash		630
	(Payment for advertising in radio)
July.30	Cash	7200
	Unearned service revenue		7200
	(Advance payment for Aug.10 kayaking clinic from 50 kayakers))
Aug.1	Cash	39000
	6% Loan - City Council		39000
	(Receipt of loan from City Council)
Aug.4	Equipment	21000
	Cash		21000
	(Purchase of 14 kayaks)
Aug.10	Cash	3400
	Service revenue		3400
	(Service revenue from 20 kayakers)
Aug.17	Cash	11400
	Service revenue		11400
	(Cash received for 2nd kayaking clinic)
Aug.24	Accounts Payable	1200
	Cash		1200
	(Payment made for office supplies purchased on July4)
Sept.1	Prepaid Rent	3240
	Cash		3240
	(Payment for 1-year rental policy for storage shed)
Sept.21	Cash	13800
	Service revenue		13800
	(Cash received for rock climbing clinic)
Oct.17	Cash	19600
	Service revenue		19600
	(Cash received for orientation clinic)
Dec.1	No entry required
Dec.5	No entry required
Dec.8	Miscellaneous expenses	1100
	Cash		1100
	(Payment made for permit for conducting race)
Dec.12	Racing supplies	2300
	Accounts Payable		2300
	(Purchasing racing supplies)
Dec.15	Cash	24000
	Revenue - Racing		24000
	(Cash received for the racing event held)
Dec.16	Salary expenses	1600
	Cash		1600
	(Salary of Victor paid)
Dec.31	Dividend	4200
	Cash		4200
	(Dividend paid)
2. Adjustment entries as at December 31, 2021 are shown below
GREAT ADVENTURE INC
Adjustment entries as at December31 , 2018
Dec.31	Depreciation expense	6680
	Accumulated Depreciation		6680
	(Depreciation expense on mountain bikes and kayaks provided)
Dec.31	Insurance expense (4920/2)	2460
	Prepaid insurance		2460
	(Insurance expense for six months acounted)
Dec.31	Rent Expense (3240/12 x 4)	1080
	Prepaid Rent		1080
	(Rent expense for four months accounted)
Dec.31	Office supplies expense	1000
	Office supplies		1000
	(Office supplies expense accounted)
Dec.31	Interest expense (39000 x 6% x 5/12)	975
	Interest payable		975
	(Interest expense for five months provided)
Dec.31	Racing supplies expense (2300 - 240)	2060
	Racing supplies		2060
	(Racing supplies expense accounted)
Dec.31	Income tax expense	14600
	Income tax payable		14600
	(Income tax expense for the year provided)