Question

Grid Iron Prep Inc. (GIPI) is a service business incorporated in January of the current year to provide personal training for athletes aspiring to play college football. The following transactions occurred during the month ended January 31.

a) GIPI issued stock in exchange for $290,000 cash on 1/01.

b) GIPI purchased a gymnasium building and gym equipment on 1/02 for $53,000, 80% of which related to the gymnasium and 20% to the equipment.

c)GIPI paid $600 cash on 1/03 to have the gym equipment refurbished before it could be used.

d) GIPI provided $9,000 in training on 1/04 and expected collection in February.

e) GIPI collected $39,000 cash in training fees on 1/10, of which $33,000 related to January and $6,000 related to February.

f) GIPI paid $24,000 of wages and $7,000 in utilities on 1/30.

g) GIPI will depreciate the gymnasium building using the straight-line method over 10 years with a residual value of $3,000. Gym equipment will be depreciated using the double-declining-balance method, with an estimated residual value of $2,500 at the end of its four-year useful life. Record depreciation on 1/31 equal to one-twelfth the yearly amount.

h) GIPI received a bill on 1/31 for $290 for advertising done on 1/31. The bill has not been paid or recorded.

i) GIPI uses the aging method for estimating doubtful accounts and, on 1/31, will record an estimated 3 percent of its under-30-day-old accounts as not collectible.j

j) GIPI’s income tax rate is 30%. Assume depreciation for tax is the same amount as depreciation for financial reporting purposes.

I am completeing the general journal now, and I particulary need help on G, I, and J.

Answer 1

	Event	Account titles and Explanation			Debit	Credit
	g.	Depreciation expense (Note:1)			795
		Accumulated depreciation-Building				328
		Accumulated depreciation-Equipment				467
		(Depreciation recorded)
	i.	Baddebt expense		(Note:2)	270
		Allowance for doubtful accounts				270
		(Alloance for accounts receivables made)
	j.	Income tax expense			2893.5
		Income tax payable				2893.5
		(Income tax due)
	Note:1- Depreciation to be recorded
	Building:
	Cost of building		(53000*80%)	42400
	Depreciation under SLM=(Cost-Salvage value)/Useful life=(42400-3000)/10=$ 3940
	Depreciation for a month=3940/12=328.33=$ 328
	Equipment:
	Cost:
	Purchase price		(53000*20%)	10600
	Refurbishment cost			600
	Total cost			11200
	Rate of depreciation under double decling balance method=2*Straight line rate
	Straight line rate=100%/Useful life=100%/4=25%
	Rate of depreciation under double decling balance method=2*25%=50%
	Depreciation=cost*depreciation rate=11200*50%=$ 5600
	Depreciation for a month=5600/12=466.67=$ 467
	Note:2- Allowance for doubtful accounts
	Amount from customers to be received in February=$ 9000
	Estmated percent uncollectible=3%
	Allownce to be made=9000*3%=$ 270
	Note:3 Computation of income tax
	Prepare an income statement
					$
	Revenue:
	04-Jan			9000
	10-Jan	Related to jan		33000	42000
	Less: Expenses
	Wages			24000
	Utilities			7000
	Depreciation expese			795
	Advertising expense			290
	Baddebt expense			270	32355
	Income before taxes				9645
	Income tax @ 30%			(9645*30%)	2893.5