Question

Great Adventures Problem 3-1

[The following information applies to the questions displayed below.]
  
On July 1, 2018, Tony and Suzie organize their new company as a corporation, Great Adventures Inc. The following transactions occur from August 1 through December 31. Also, the balances are provided for the month ended July 31.
  
The articles of incorporation state that the corporation will sell 39,000 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.
  
Jul. 1 Sell $19,500 of common stock to Suzie.
Jul. 1 Sell $19,500 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 $1,900 associated with incorporation.
Jul. 4 Purchase office supplies of $1,200 on account.
Jul. 7 Pay for advertising of $360 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $60 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 $3,000 from 50 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 $3,450.
Jul. 24 Pay for advertising of $820 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 $5,500 in advance from 50 kayakers for the upcoming kayak clinic.
Aug. 1 Great Adventures obtains a $37,000 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 $19,600 cash.
Aug. 10 Twenty additional kayakers pay $3,200 ($160 each), in addition to the $5,500 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 $11,300 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, purchasing a one-year rental policy for $3,360 ($280 per month).
Sep. 21 Tony conducts a rock-climbing clinic. The company receives $14,900 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 $19,900 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 $640.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 $1,000 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 $2,600 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 $25,600 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 $3,000 ($1,500 to Tony and $1,500 to Suzie).
Dec. 31 Using his personal money, Tony purchases a diamond ring for $4,400. 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, 2018.
  
a. Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $8,500.
b. Six months’ worth of insurance has expired.
c. Four months’ worth of rent has expired.
d. Of the $1,200 of office supplies purchased on July 4, $320 remains.
e. Interest expense on the $37,000 loan obtained from the city council on August 1 should be recorded.
f. Of the $2,600 of racing supplies purchased on December 12, $300 remains.
g. Suzie calculates that the company owes $13,800 in income taxes.
  
Assume the following ending balances for the month of July.

	Balance
Cash	$	30,550
Prepaid insurance		4,920
Supplies (Office)		1,200
Equipment (Bikes)		12,400
Accounts payable		1,200
Deferred revenue		5,500
Common stock		39,000
Service revenue (Clinic)		6,450
Advertising expense		1,180
Legal fees expense		1,900
Great Adventures Problem 3-1 Part 1 Required: 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, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) 4. Prepare an adjusted trial balance as of December 31, 2018. (The items in the Trial Balance should be grouped as follows: Assets, Contra-asset accounts, Liabilities, Equity, Dividends, Revenues, and Expenses.)    Great Adventures Problem 3-1 Part 5 5-a. For the period July 1 to December 31, 2018, prepare an income statement.       5-b. For the period July 1 to December 31, 2018, prepare a statement of stockholders’ equity. All account balances on July 1 were zero.             5-c. Prepare a classified balance sheet as of December 31, 2018. (Amounts to be deducted should be indicated with minus sign.) 6. Record closing entries as of December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

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Date	Account	Debit	Credit
Jul 1	Cash	$       19,500
Jul 1	Common Stock		$       19,500
Jul 1	Cash	$       19,500
Jul 1	Common Stock		$       19,500
Jul 1	Prepaid Insurance	$         4,920
Jul 1	Cash		$         4,920
Jul 2	Legal Fee Expense	$         1,900
Jul 2	Cash		$         1,900
Jul 4	Office Supplies	$         1,200
Jul 4	Accounts Payable		$         1,200
Jul 7	Advertising Expense	$             360
Jul 7	Cash		$             360
Jul 8	Equipment-Bikes	$       12,400
Jul 8	Cash		$       12,400
Jul 15	Cash	$         3,000
Jul 15	Service Revenue-Clinic		$         3,000
Jul 22	Cash	$         3,450
Jul 22	Service Revenue-Clinic		$         3,450
Jul 24	Advertising Expense	$             820
Jul 24	Cash		$             820
Jul 30	Cash	$         5,500
Jul 30	Deferred Revenue		$         5,500
Aug 1	Cash	$       37,000
Aug 1	Note Payable		$       37,000
Aug 4	Equipment-Kayaks	$       19,600
Aug 4	Cash		$       19,600
Aug 10	Cash	$         3,200
Aug 10	Service Revenue-Clinic		$         3,200
Aug 10	Deferred Revenue	$         5,500
Aug 10	Service Revenue-Clinic		$         5,500
Aug 17	Cash	$       11,300
Aug 17	Service Revenue-Clinic		$       11,300
Aug 24	Accounts Payable	$         1,200
Aug 24	Cash		$         1,200
Sep 1	Prepaid Rent	$         3,360
Sep 1	Cash		$         3,360
Sep 21	Cash	$       14,900
Sep 21	Service Revenue-Clinic		$       14,900
Oct 17	Cash	$       19,900
Oct 17	Service Revenue-Clinic		$       19,900
Dec 8	Miscellaneous Expense	$         1,000
Dec 8	Cash		$         1,000
Dec 12	Racing Supplies	$         2,600
Dec 12	Accounts Payable		$         2,600
Dec 15	Cash	$       25,600
Dec 15	Fees Income		$       25,600
Dec 16	Salaries Expense	$         1,600
Dec 16	Cash		$         1,600
Dec 31	Dividend	$         3,000
Dec 31	Cash		$         3,000
Adjusting Entries:
a	Depreciation Expenses	$         8,500
a	Accumulated Depreciation		$         8,500
b	Insurance Expense	$         2,460		4920/12*6
b	Prepaid Insurance		$         2,460
c	Rent Expense	$         1,120		3360/12*4
c	Prepaid Rent		$         1,120
d	Office Supplies Expense	$             880		1200-320
d	Office Supplies		$             880
e	Interest Expense	$             925		37000*6%*5/12
e	Interest Payable		$             925
f	Racing Supplies Expense	$         2,300		2600-300
f	Racing Supplies		$         2,300
g	Income Tax Expense	$       13,800
g	Income Tax Payable		$       13,800

Trial Balance:
Account	Debit	Credit
Cash	$       112,690
Prepaid Insurance	$            2,460
Prepaid Rent	$            2,240
Office Supplies	$               320
Racing Supplies	$               300
Equipment-Bikes	$         12,400
Equipment-Kayaks	$         19,600
Accumulated Depreciation		$            8,500
Accounts Payable		$            2,600
Note Payable		$         37,000
Interest Payable		$               925
Income Tax Payable		$         13,800
Common Stock		$         39,000
Dividend	$            3,000
Service Revenue-Clinic		$         61,250
Fees Income		$         25,600
Rent Expense	$            1,120
Salaries Expense	$            1,600
Legal Fee Expense	$            1,900
Insurance Expense	$            2,460
Depreciation Expenses	$            8,500
Advertising Expense	$            1,180
Miscellaneous Expense	$            1,000
Office Supplies Expense	$               880
Racing Supplies Expense	$            2,300
Interest Expense	$               925
Income Tax Expense	$         13,800
Total	$       188,675	$       188,675

5a. Income Statement:
Service Revenue-Clinic		$         61,250
Fees Income		$         25,600
Less: Expenses
Rent Expense	$            1,120
Salaries Expense	$            1,600
Legal Fee Expense	$            1,900
Insurance Expense	$            2,460
Depreciation Expenses	$            8,500
Advertising Expense	$            1,180
Miscellaneous Expense	$            1,000
Office Supplies Expense	$               880
Racing Supplies Expense	$            2,300
Total Expenses		$         20,940
Income from Operations		$         65,910
Less: Interest Expense		$               925
Income Before tax		$         64,985
Less:Income Tax Expense		$         13,800
Net Income		$         51,185
5b. Statement of Stakeholder Equity:
Common Stock	$         39,000
Add: Net Income	$         51,185
Less: Dividend	$            3,000
Equity Balance	$         87,185
5c. Balance Sheet:
Assets
Current Assets:
Cash	$       112,690
Prepaid Insurance	$            2,460
Prepaid Rent	$            2,240
Office Supplies	$               320
Racing Supplies	$               300
Total Current Assets		$       118,010
Fixed Assets:
Equipment-Bikes	$         12,400
Equipment-Kayaks	$         19,600
Accumulated Depreciation	$          -8,500
Total Fixed Assets		$         23,500
Total Assets		$       141,510
Liabilities
Current Liabilities:
Accounts Payable	$            2,600
Interest Payable	$               925
Income Tax Payable	$         13,800
Total Current Liabilities		$         17,325
Note Payable		$         37,000
Total Liabilties		$         54,325
Stockholder Equity:
Common Stock	$         39,000
Retained Earning 51185-3000	$         48,185
Total Equity		$         87,185
Total Equity and Liabilities		$       141,510