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 24,000 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 $12,000 of common stock to Suzie.
Jul.		1		Sell $12,000 of common stock to Tony.
Jul.		1		Purchase a one-year insurance policy for $4,080 ($340 per month) to cover injuries to participants during outdoor clinics.
Jul.		2		Pay legal fees of $1,200 associated with incorporation.
Jul.		4		Purchase office supplies of $1,900 on account.
Jul.		7		Pay for advertising of $320 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $40 on the day of the clinic.
Jul.		8		Purchase 10 mountain bikes, paying $11,600 cash.
Jul.		15		On the day of the clinic, Great Adventures receives cash of $2,000 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 $2,350.
Jul.		24		Pay $780 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 $33,000 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 $18,200 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 $12,400 cash.
Aug.		24		Office supplies of $1,900 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 $2,880 ($240 per month) in advance.
Sep.		21		Tony conducts a rock-climbing clinic. The company receives $13,700 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 $18,500 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 $680.
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 $1,500 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 $2,900 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 $27,200 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 $3,600 ($1,800 to Tony and $1,800 to Suzie).
Dec.		31		Using his personal money, Tony purchases a diamond ring for $4,700. 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 $5,960.
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 $1,900 of office supplies purchased on July 4, $390 remains.
5. Interest expense on the $33,000 loan obtained from the city council on August 1 should be recorded.
6. Of the $2,900 of racing supplies purchased on December 12, $230 remains.
7. Suzie calculates that the company owes $14,700 in income taxes.

• General Journal
• General Ledger
• Trial Balance
• Income Statement
• Statement of SE
• Balance Sheet

Answer 1

In the Books of Great Adventures Inc

General Journal   

Date	Account Titles	Debit	Credit
01-Jul	Cash	12000
	Common Stock		12000
01-Jul	Cash	12000
	Common Stock		12000
01-Jul	Insurance Expenses	2040
	Prepaid Insurance	2040
	Cash		4080
	( assumed that 1 years policy is purchased )
02-Jul	Legal Fees	1200
	Cash		1200
04-Jul	Office Supplies	1900
	Account Payable		1900
07-Jul	Advertising Expenses	320
	Cash		320
08-Jul	Mountain Bike & Kayaks	11600
	Cash		11600
15-Jul	Cash	2000
	Service revenue		2000
22-Jul	Cash	2350
	Service revenue		2350
24-Jul	Advertising Expenses	780
	Cash		780
30-Jul	Cash	7700
	Unearned Service Revenue		7700
01-Aug	Cash	33000
	Loan From City Council		33000
04-Aug	Mountain Bike & Kayaks	18200
	Cash		18200
10-Aug	Unearned Service Revenue	7700
	Cash	3200
	Service Revenue		10900
17-Aug	Cash	12400
	Service Revenue		12400
24-Aug	Account Payable	1900
	Cash		1900
01-Sep	Shed Rent	960
	Advance Shed Rent	1920
	Cash		2880
	( Assumed that 1 year rent is paid )
21-Sep	Cash	13700
	Service revenue		13700
17-Oct	Cash	18500
	Service revenue		18500
08-Dec	Miscelleneous expenses	1500
	Cash		1500
12-Dec	Supplies	2900
	Account payable		2900
15-Dec	Cash	27200
	Service revenue		27200
16-Dec	Salary ( $40 * 40 teams )	1600
	Cash		1600
31-Dec	Dividend	3600
	Cash		3600
31-Dec	Interest on Loan ( $ 33000* 6%*5/12)	825
	Cash		825
31-Dec	Depreciation	5960
	Provision for Depreciation		5960
31-Dec	Income tax Expenses	14700
	Income tax payable		14700

Cash
Date	Account Title	Debit	Date	Account Title	Credit
01-Jul	Common Stock	12000	01-Jul	Insurance Expenses	2040
01-Jul	Common Stock	12000	01-Jul	Prepaid Insurance	2040
15-Jul	Service revenue	2000	02-Jul	Legal Fees	1200
22-Jul	Service revenue	2350	07-Jul	Advertising Expenses	320
30-Jul	Unearned Service Revenue	7700	08-Jul	Mountain Bike & Kayaks	11600
01-Aug	Loan From City Council	33000	24-Jul	Advertising Expenses	780
10-Aug	Service Revenue	3200	04-Aug	Mountain Bike & Kayaks	18200
17-Aug	Service Revenue	12400	24-Aug	Account Payable	1900
21-Sep	Service revenue	13700	01-Sep	Shed Rent	960
17-Oct	Service revenue	18500	01-Sep	Advance Shed Rent	1920
15-Dec	Service revenue	27200	08-Dec	Miscelleneous expenses	1500
			16-Dec	Salary	1600
			31-Dec	Dividend	3600
			31-Dec	Interest on Loan ( $ 33000* 6%*5/12)	825
			31-Dec	Bal C/d	95565
		144050			144050

Account Payable
Date	Account Title	Debit	Date	Account Title	Credit
24-Aug	Cash	1900	04-Jul	Supplies	1900
31-Dec	Bal C/d	2900	12-Dec	Supplies	2900
		4800			4800

Depreciation
Date	Account Title	Debit	Date	Account Title	Credit
31-Dec	Provision for Depreciation	5960	31-Dec	Income Summary	5960
		5960			5960

Advance Shed Rent
Date	Account Title	Debit	Date	Account Title	Credit
01-Sep	Cash	1920	31-Dec	Bal C/d	1920
		1920			1920

Provision for Depreciation
Date	Account Title	Debit	Date	Account Title	Credit
31-Dec	Bal C/d	5960	31-Dec	Depreciation	5960
		5960			5960

Miscelleneous expenses
Date	Account Title	Debit	Date	Account Title	Credit
08-Dec	Cash	1500	31-Dec	Income Summary	1500
		1500			1500

Salary expenses
Date	Account Title	Debit	Date	Account Title	Credit
16-Dec	Cash	1600	31-Dec	Income Summary	1600
		1600			1600

Unearned Service Revenue
Date	Account Title	Debit	Date	Account Title	Credit
10-Aug	Service revenue	7700	30-Jul	Cash	7700
		7700			7700

Service revenue
Date	Account Title	Debit	Date	Account Title	Credit
31-Dec	Income Summary	87050	15-Jul	Cash	2000
			22-Jul	Cash	2350
			10-Aug	Cash	3200
			10-Aug	Unearned Service Revenue	7700
			17-Aug	Cash	12400
			21-Sep	Cash	13700
			17-Oct	Cash	18500
			15-Dec	Cash	27200
		87050			87050

Shed Rent
Date	Account Title	Debit	Date	Account Title	Credit
01-Sep	Cash	960	31-Dec	Income Summary	960
		960			960