In: Accounting
Tony and Suzie 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, Tony and Suzie organize their new company as a corporation, Great
Adventures Inc. The articles of incorporation state that the corporation will sell 20,000
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
business activities occur during July for Great Adventures.
July 1
Sell $10,000 of common stock to Suzie.
1 Sell $10,000 of common stock to Tony.
1 Purchase a one-year insurance policy for $4,800 ($400
per month) to cover injuries to participants during
outdoor clinics.
2 Pay legal fees of $1,500 associated with incorporation.
4 Purchase office supplies of $1,800 on account.
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 $50 the day of the clinic.
8
Purchase 10 mountain bikes, paying $12,000 cash.
15
On the day of the clinic, Great Adventures receives
cash of $2,000 from 40 bikers. Tony conducts the
mountain biking clinic.
22
Because of the success of the first mountain biking
clinic, Tony holds another mountain biking clinic and
the company receives $2,300.
24
Pay for advertising of $700 to a local radio station for a
kayaking clinic to be held on August 10. Attendees can
pay $100 in advance or $150 on the day of the clinic.
30
Great Adventures receives cash of $4,000 in advance
from 40 kayakers for the upcoming kayak clinic.
BBUS 210 Project 1
Aug. 1
Great Adventures obtains a $30,000 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 $28,000
cash.
Aug. 10
Twenty additional kayakers pay $3,000 ($150 each),
in addition to the $4,000 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 $10,500 cash.
Aug. 24
Office supplies of $1,800 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
$2,400 ($200 per month).
Sep. 21
Tony conducts a rock-climbing clinic. The company
receives $13,200 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 $17,900 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 $500.
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.
BBUS 210 Project 1
Dec. 8
The company pays $1,200 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 $2,800
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 Victor's salary of $2,000.
Dec. 31
The company pays a dividend of $4,000 ($2,000 to
Tony and $2,000 to Suzie).
Dec. 31
Using his personal money, Tony purchases a
diamond ring for $4,500. Tony surprises Suzie by
proposing that they get married. Suzie accepts and
they get married!
Required:
1.Record each transaction in July for Great Adventures.
2.Post each transaction to T-accounts.
3.Prepare a trial balance.
The following information relates to year-end adjusting entries as of December 31,
2018.
a.Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on
August 4 totals $8,000.
b.Six months' of the one-year insurance policy purchased on July 1 has expired.
c.Four months' of the one-year rental policy purchased on September 1 has expired.
d.Of the $1,800 of office supplies purchased on July 4, $300 remains.
e.Interest expense on the $30,000 loan obtained from the city council on August 1
should be recorded.
f.Of the $2,800 of racing supplies purchased on December 12, $200 remains.
g.Suzie calculates that the company owes $14,000 in income taxes.
BBUS 210 Project 1
Required:
1.Record adjusting entries as of December 31, 2018.
2.Post transactions from July 1 through December 31 and adjusting entries on
December 31 to T-accounts.
3.Prepare an adjusted trial balance as of December 31, 2018.
4.For the period July 1 to December 31, 2018, prepare an income statement and
statement of stockholders' equity. Prepare a classified balance sheet as of
December 31, 2018.
5.Record closing entries as of December 31, 2018.
6.Post closing entries to T-accounts.
7.Prepare a post-closing trial balance as of December 31, 2018.
1. In the books of Great Adventures Inc. :
Date | Account Titles | Debit | Credit |
2018 | $ | $ | |
July 1 | Cash | 20,000 | |
Common Stock | 20,000 | ||
July 1 | Prepaid Insurance | 4,800 | |
Cash | 4,800 | ||
July 2 | Legal Fees Expense | 1,500 | |
Cash | 1,500 | ||
July 4 | Office Supplies | 1,800 | |
Accounts Payable | 1,800 | ||
July 7 | Advertising Expense | 300 | |
Cash | 300 | ||
July 8 | Equipment: Bikes | 12,000 | |
Cash | 12,000 | ||
July 15 | Cash | 2,000 | |
Service Revenue ( Clinic) | 2,000 | ||
July 22 | Cash | 2,300 | |
Service Revenue ( Clinic) | 2,300 | ||
July 24 | Advertising Expense | 700 | |
Cash | 700 | ||
July 30 | Cash | 4,000 | |
Deferred Revenue | 4,000 | ||
Aug 1 | Cash | 30,000 | |
Notes Payable | 30,000 | ||
Aug 4 | Equipment: Kayaks | 28,000 | |
Cash | 28,000 | ||
Aug 10 | Cash | 3,000 | |
Deferred Revenue | 4,000 | ||
Service Revenue ( Clinic) | 7,000 | ||
Aug 17 | Cash | 10,500 | |
Service Revenue ( Clinic) | 10,500 | ||
Aug 24 | Accounts Payable | 1,800 | |
Cash | 1,800 | ||
Sep 1 | Prepaid Rent | 2,400 | |
Cash | 2,400 | ||
Sep 21 | Cash | 13,200 | |
Service Revenue ( Clinic) | 13,200 | ||
Oct 17 | Cash | 17,900 | |
Service Revenue ( Clinic) | 17,900 | ||
Dec 1 | No JE required | 0 | 0 |
Dec 5 | No JE required | 0 | 0 |
Dec 8 | Miscellaneous Expense | 1,200 | |
Cash | 1,200 | ||
Dec 12 | Racing Supplies | 2,800 | |
Accounts Payable | 2,800 | ||
Dec 15 | Cash | 20,000 | |
Service Revenue ( Racing) | 20,000 | ||
Dec 16 | Salaries Expense | 2,000 | |
Cash | 2,000 | ||
Dec 31 | Dividends | 4,000 | |
Cash | 4,000 |
3.
Great Adventures Inc. | ||
Trial Balance | ||
July 31, 2018 | ||
Account Titles | Debit | Credit |
$ | $ | |
Cash | 9,000 | |
Office Supplies | 1,800 | |
Prepaid Insurance | 4,800 | |
Equipment: Bikes | 12,000 | |
Accounts Payable | 1,800 | |
Deferred Revenue | 4,000 | |
Common Stock | 20,000 | |
Service Revenue ( Clinic) | 4,300 | |
Advertising Expense | 1,000 | |
Legal Fees Expense | 1,500 | |
30,100 | 30,100 |
4. Adjusting Entries:
Adjustment # | Account Titles | Debit | Credit |
December 31, 2018 | $ | $ | |
a. | Depreciation Expense | 8,000 | |
Accumulated Depreciation : Equipment | 8,000 | ||
b. | Insurance Expense | 2,400 | |
Prepaid Insurance | 2,400 | ||
c. | Rent Expense | 800 | |
Prepaid Rent | 800 | ||
d. | Office Supplies Expense | 1,500 | |
Office Supplies | 1,500 | ||
e. | Interest Expense | 750 | |
Interest Payable | 750 | ||
f. | Racing Supplies Expense | 2,600 | |
Racing Supplies | 2,600 | ||
g. | Income Tax Expense | 14,000 | |
Income Taxes Payable | 14,000 |
4.
Great Adventures Inc. | ||
Adjusted Trial Balance | ||
December 31, 2018 | ||
Account Titles | Debit | Credit |
$ | $ | |
Cash | 64,200 | |
Office Supplies | 300 | |
Racing Supplies | 200 | |
Prepaid Insurance | 2,400 | |
Prepaid Rent | 1,600 | |
Equipment ( Bikes) | 12,000 | |
Equipment ( Kayaks) | 28,000 | |
Accumulated Depreciation : Equipment | 8,000 | |
Accounts Payable | 2,800 | |
Interest Payable | 750 | |
Income Taxes Payable | 14,000 | |
Notes Payable | 30,000 | |
Common Stock | 20,000 | |
Dividends | 4,000 | |
Service Revenue ( Clinic) | 52,900 | |
Service Revenue ( Racing) | 20,000 | |
Salaries Expense | 2,000 | |
Office Supplies Expense | 1,500 | |
Racing Supplies Expense | 2,600 | |
Advertising Expense | 1,000 | |
Legal Fees Expense | 1,500 | |
Miscellaneous Expense | 1,200 | |
Depreciation Expense | 8,000 | |
Insurance Expense | 2,400 | |
Rent Expense | 800 | |
Interest Expense | 750 | |
Income Tax Expense | 14,000 | |
Totals | $ 148,450 | $ 148,450 |