Question

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 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 $5,520 ($460 per month) to cover injuries to participants during outdoor clinics. Jul. 2 Pay legal fees of $1,500 associated with incorporation. Jul. 4 Purchase office supplies of $1,200 on account. Jul. 7 Pay for advertising of $380 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 $17,000 cash. Jul. 15 On the day of the clinic, Great Adventures receives cash of $2,800 from 70 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 $3,350. Jul. 24 Pay for advertising of $880 to a local radio station for a kayaking clinic to be held on August 10. Attendees can pay $130 in advance or $180 on the day of the clinic. Jul. 30 Great Adventures receives cash of $6,500 in advance from 50 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 $26,600 cash. Aug. 10 Twenty additional kayakers pay $3,600 ($180 each), in addition to the $6,500 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 $10,900 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 $4,680 ($390 per month). Sep. 21 Tony conducts a rock-climbing clinic. The company receives $14,500 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 $18,800 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 $630. 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. Dec. 8 The company pays $1,900 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 $25,200 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 $4,400 ($2,200 to Tony and $2,200 to Suzie). Dec. 31 Using his personal money, Tony purchases a diamond ring for $3,900. 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. Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $8,720. Six months’ worth of insurance has expired. Four months’ worth of rent has expired. Of the $1,200 of office supplies purchased on July 4, $240 remains. Interest expense on the $33,000 loan obtained from the city council on August 1 should be recorded. Of the $2,800 of racing supplies purchased on December 12, $230 remains. Suzie calculates that the company owes $14,200 in income taxes.

Requirement:

1.	Record each of the transactions listed above in the 'General Journal' tab (these are shown as items 1 - 27). Review the 'General Ledger' and the 'Trial Balance' tabs to see the effect of the transactions on the account balances.
2.	Record the adjusting entries in the 'General Journal' tab (these are shown as items 28-34).
3.	Review the adjusted 'Trial Balance' as of December 31, 2018.
4.	Prepare an income statement for the period ended December 31, 2018, in the 'Income Statement' tab.
5.	Prepare a classified balance sheet as of December 31, 2018 in the 'Balance Sheet' tab.
6.	Record the closing entries in the 'General Journal' tab (these are shown as items 35-37).

Answer 1

1.

GREAT ADVENTURE INC.
Journal Entries
Date	Account	Debit	Credit
Jul. 1	Cash	14000
	Common Stock		14000
	(Sale of common stock to Suize)
Jul. 1	Cash	14000
	Common Stock		14000
	(Sale of common stock to Tony)
Jul. 1	Pre-paid insurance	4200
	Cash		4200
	(Purchase of one year insurance policy)
Jul. 2	Legal fee	1700
	Cash		1700
	(Payment of legal fee for incorporation)
Jul.4	Office Supplies	1100
	Accounts Payable		1100
	(Purchase of office supplies on account)
Jul. 7	Advertising	220
	Cash		200
	(Payment of advertising for biking clinic)
Jul.8	Equipment	16300
	Cash		16300
	(Purchase of 10 bikes)
Jul.15	Cash	2500
	Service Revenue		2500
	(Cash received from bikers)
Jul.22	Cash	3050
	Service Revenue		3050
	(Cash received from bikers)
Jul. 24	Advertising	750
	Cash		750
	(Payment of advertising for biking clinic)
Jul.30	Cash	7200
	Deferred Revenue		7200
	(Advance paid by 80 bikers)
Aug.1	Cash	32000
	6% Loan		32000
	(Loan received from city council)
Aug. 4	Equipment (Kayaks)	16900
	Cash		16900
	(Purchase of 14 Kayaks for cash)
Aug.10	Cash	3400
	Service Revenue		3400
	(Cash received from kayakers)
Aug.10	Deferred Revenue	7200
	Service Revenue		7200
	(Transfer of Deferred Revenue to Service Revenue)
Aug. 17	Cash	12300
	Service Revenue		12300
	(Cash received from kayakers)
Aug. 24	Accounts Payable	1100
	Cash		1100
	(Payment for office supplies purchased on Jul.4)
Sep. 1	Prepaid Rent	4440
	Cash		4440
	(Rent paid for one year)
Sep.21	Cash	14000
	Service Revenue		14000
	(Cash received for rock-climbing clinic)
Oct.17	Cash	18000
	Service Revenue		18000
	(Cash received for orienteering clinic)
Dec. 1	No entry required
Dec. 5	No entry required
Dec.8	Miscellaneous Exp.	1700
	Cash		1700
	(Payment for permit from state park)
Dec.12	Racing Supplies	2900
	Accounts Payable		2900
	(Payment for race supplies)
Dec.15	Cash	23200
	Racing Revenue		23200
	(Cash received from 40 teams)
Dec. 16	Salary	2400
	Cash		2400
	(Salary paid to Victor @$50 per team for 40 teams)
Dec.31	Dividend	3800
	Cash		3800
	(Dividend paid to Suize and Tony @2,350 each)
Dec. 31	No entry required for purchase of ring.

GREAT ADVENTURE INC.
Trial balance as at December 31, 2018
Account	Trial Balance
	Debit	Credit
Cash	90140
Prepaid insurance	4200
Prepaid rent	4440
Supplies office	1100
Supplies racing	2900
Equipment	33200
Acumulated depreciation	0
Accounts payable		2900
Interest payable		0
Income tax payable		0
Notes payable		32000
Commonstock		28000
Dividend	3800
Service Revenue		83650
Advertising	970
Legal fee	1700
Miscellaneus expenses	1700
Salaries expense	2400
Depreciation expense
Rent expense
Supplies expense (office)
Supplies expense (racing)
Income tax expense
Insurance expense
Interest expense
	146550	146550

2.

GREAT ADVENTURE INC.
Adjustment Entries
Date	Account	Debit	Credit
Dec.31	Depreciation	6640
	Accumulated depreciation - Equipment		6640
	(Depreciation on equipment accounted)
Dec. 31	Insurance Expense	2100
	Prepaid Insurance		2100
	(Insurance expense for six months accounted)
Dec. 31	Rent expense	1600
	Prepaid rent		1600
	(Rent expense for 4 months accounted)
Dec. 31	Office Expenses	860
	Supplies expense - ofice		860
	(Office supplies consumed accounted)
Dec.31	Interest Expense	800
	Interest Payable		800
	(Interest expense on loan from city council accounted)
Dec.31	Supplies expense - Racing	2780
	Racing Supplies		2780
	(Racing supplies consumed accounted)
Dec. 31	Income Tax expense	13300
	Income Tax payable		13300
	(Income tax for the year accounted)

3.

GREAT ADVENTURE INC.
Trial balance as at December 31, 2018
Account	Adjusted trial balance
	Debit	Credit
Cash	90140
Prepaid insurance	2100
Prepaid rent	2840
Supplies office	240
Supplies racing	120
Equipment	33200
Acumulated depreciation		6640
Accounts payable		2900
Interest payable		800
Income tax payable		13300
Notes payable		32000
Commonstock		28000
Dividend	3800	0
Service Revenue		83650
Advertising	970
Legal fee	1700
Miscellaneus expenses	1700
Salaries expense	2400
Depreciation expense	6640
Rent expense	1600
Supplies expense (office)	860
Supplies expense (racing)	2780
Income tax expense	13300
Insurance expense	2100
Interest expense	800
Total	167290	167290

4.

GREAT ADVENTURE INC
Income Statement
For the period ended Dec.31 2018
			$	$
Service Revenue				83650
Expenses:
Advertising Expense			970
Legal fee			1700
Miscellaneous expense			1700
Salaries expense			2400
Depreciation expense			6640
Rent expense			1600
Supplies expense(office)			860
Supplies expense (Racing)			2780
Insurance expense			2100
Interest expense			800
Income tax expense			13300
Total expense				34850
Net income				48800

5.

GREAT ADVENTURE INC
Balance Sheet
As at December 31, 2018
Assets
Cash				90140
Prepaid Insurance				2100
Prepaid rent				2840
Supplies - office				240
Supplies - Racing				120
Total Current assets				95440
Equipment			33200
Less: Accumulated Depreciation			6640	26560
Total Assets				122000
Liabilities & Equity
Accounts payable				2900
Interest payable				800
Income tax payable				13300
Note payable, 6%				32000
Total Liabilities				49000
Common Stock				28000
Pofit for the year			48800
Dividend paid			3800
Retained earnings at December,31 2018				45000
Total Liabilities & Equity				122000