Question

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.

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.

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!

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’ worth of insurance has expired.

c. Four months’ worth of rent 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. Assume the following ending balances for the month of July. Balance Cash $ 9,000 Prepaid insurance 4,800 Supplies (Office) 1,800 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

QUESTIONS:

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.)

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 by a minus sign.)

Answer 1

Answer 4.
Adjusted Trial Balance
As of Dec 31, 2018
Assets
Cash	64,200.00
Prepaid Insurance	2,400.00
Supplies (office)	300.00
Equipment (Bikes & Kayaks)	40,000.00
Prepaid rent	1,600.00
Supplies (Racing)	200.00
Accumulated Dep. - Equipment		8,000.00
Liabilities
Accounts Payable		2,800.00
Loan Liability		30,000.00
Interest Payable		750.00
Income Tax Payable		14,000.00
Equity
Common Stock		20,000.00
Dividends
Dividends	4,000.00
Revenues
Service Revenue (Clinic)		52,900.00
Service Revenue (Racing)		20,000.00
Expenses
Advertising Exp.	1,000.00
Legal fees Exp.	1,500.00
Misc Exp.	1,200.00
Salaries Exp.	2,000.00
Dep. Exp.	8,000.00
Insurance Exp.	2,400.00
Rent Exp.	800.00
Supplies Exp.	4,100.00
Interest Exp.	750.00
Income Tax Exp.	14,000.00
Total	148,450.00	148,450.00
		-
Answer 5-a.
Great Adventures
Income Statement
For the Period Ended Dec 31, 2018
Revenue
Service Revenue (Clinic)	52,900.00
Service Revenue (Racing)	20,000.00
Total Revenue		72,900.00
Expenses
Advertising Exp.	1,000.00
Legal fees Exp.	1,500.00
Misc Exp.	1,200.00
Salaries Exp.	2,000.00
Dep. Exp.	8,000.00
Insurance Exp.	2,400.00
Rent Exp.	800.00
Supplies Exp.	4,100.00
Interest Exp.	750.00
Income Tax Exp.	14,000.00
Total Expense		35,750.00
Net Income		37,150.00
Answer 5-b.
Great Adventures
Statement of Stockholders' Equity
For the Period Ended Dec 31, 2018
	Common Stock	Retained Earnings	Total Stockholders Equity
Beginning Balance - July 31	20,000.00	-	20,000.00
Net Income		37,150.00	37,150.00
Dividends		(4,000.00)	(4,000.00)
Ending Balance - Dec 31, 2018	20,000.00	33,150.00	53,150.00
Answer 5-c.
Great Adventures
Balance Sheet
As of Dec 31, 2018
Assets
Current Assets
Cash	64,200.00
Prepaid Insurance	2,400.00
Supplies (office)	300.00
Prepaid rent	1,600.00
Supplies (Racing)	200.00	68,700.00
Property, Plant & Equipment
Equipment (Bikes & Kayaks)	40,000.00
Accumulated Dep. - Equipment	(8,000.00)	32,000.00
Total Assets		100,700.00
Liabilities & Stockholders Equity
Liabilities
Current Liabilities
Accounts Payable	2,800.00
Interest Payable	750.00
Income Tax Payable	14,000.00	17,550.00
Long Term Liability
Loan Liability		30,000.00
Total Liabilities		47,550.00
Stockholders' Equity
Common Stock	20,000.00
Retained Earnings	33,150.00
Total Stockholders' Equity		53,150.00
Total Liabilities & Stockholders' Equity		100,700.00