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.
  
The articles of incorporation state that the corporation will sell 28,000 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 $14,000 of common stock to Suzie.
Jul. 1 Sell $14,000 of common stock to Tony.
Jul. 1 Purchase a one-year insurance policy for $5,640 ($470 per month) to cover injuries to participants during outdoor clinics.
Jul. 2 Pay legal fees of $1,800 associated with incorporation.
Jul. 4 Purchase office supplies of $1,700 on account.
Jul. 7 Pay for advertising of $260 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 $13,200 cash.
Jul. 15 On the day of the clinic, Great Adventures receives cash of $4,200 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 $4,750.
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 $150 in advance or $200 on the day of the clinic.
Jul. 30 Great Adventures receives cash of $9,000 in advance from 60 kayakers for the upcoming kayak clinic.
Aug. 1 Great Adventures obtains a $45,000 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 $20,900 cash.
Aug. 10 Twenty additional kayakers pay $4,000 ($200 each), in addition to the $9,000 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 $1,700 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 $4,080 ($340 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 $18,300 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 $670.Dec. 5 To help organize and promote the race, Tony hires his college roommate, Victor. Victor will be paid $30 in salary for each team that competes in the race. His salary will be paid after the race.Dec. 8 The company pays $1,600 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 $26,800 cash from a total of forty teams, and the race is held.Dec. 16 The company pays Victor’s salary of $1,200.
Dec. 31 The company pays a dividend of $4,800 ($2,400 to Tony and $2,400 to Suzie).
Dec. 31 Using his personal money, Tony purchases a diamond ring for $3,600. 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 $7,200.
b. Six months’ worth of insurance has expired.
c. Four months’ worth of rent has expired.
d. Of the $1,700 of office supplies purchased on July 4, $210 remains.
e. Interest expense on the $45,000 loan obtained from the city council on August 1 should be recorded.
f. Of the $2,600 of racing supplies purchased on December 12, $260 remains.
g. Suzie calculates that the company owes $13,600 in income taxes.
  
Assume the following ending balances for the month of July.

	Balance
Cash	$	24,230
Prepaid insurance		5,640
Supplies (Office)		1,700
Equipment (Bikes)		13,200
Accounts payable		1,700
Deferred revenue		9,000
Common stock		28,000
Service revenue (Clinic)		8,950
Advertising expense		1,080
Legal fees expense		1,800
3. Post transactions from August 1 through December 31 and adjusting entries on December 31 to T-accounts. (Be sure to include beginning balances in the T-accounts.)

Answer 1

Cash :

Bal 7/31	24,230	Equipment ( Kayak )	20,900
Note Payable	45,000	Accounts Payable	1,700
Service Revenue ( Clinic)	4,000	Prepaid Rent	4,080
Service Revenue ( Clinic)	10,500	Miscellaneous Expense	1,600
Service Revenue ( Clinic)	14,900	Salaries Expense	1,200
Service Revenue ( Clinic)	18,300	Dividends	4,800
Service Revenue ( Racing)	26,800
Bal 12/31	109,450

Prepaid Insurance:

Bal 7/31	5,640	Insurance Expense	2,820
Bal 12/31	2,820

Prepaid Rent:

Cash	4,080	Rent Expense	1,360
Bal 12/31	2,720

Supplies ( Office):

Bal 7/31	1,700	Supplies ( Office ) Expense	1,490
Bal 12/31	210

Supplies ( Racing):

Accounts Payable	2,600	Supplies ( Raing ) Expense	2,340
Bal 12/31	260

Equipment ( Bikes):

Bal 7/31	13,200
Bal 12/31	13,200

Equipment ( Kayaks) :

Cash	20,900
Bal 12/31	20,900

Accumulated Depreciation : Equipment

		Depreciation Expense	7,200
		Bal 12/31	7,200

Accounts Payable:

Cash	1,700	Bal 7 /31	1,700
		Supplies ( Racing)	2,600
		Bal 12/31	2,600

Deferred Revenue :

Service Revenue ( Clinic)	9,000	Bal 7/31	9,000
		Bal 12/31	0

Interest Payable:

		Interest Expense	1,125
		Bal 12/31	1,125

Income Taxes Payable:

		Income Tax Expense	13,600
		Bal 12/31	13,600

Note Payable:

		Cash	45,000
		Bal 12/31	45,000

Common Stock:

		Bal 7/31	28,000
		Bal 12/31	28,000

Dividends:

Cash	4,800
Bal 12/31	4,800

Service Revenue ( Clinic):

		Bal 7/31	8,950
		Deferred Revenue	9,000
		Cash	4,000
		Cash	10,500
		Cash	14,900
		Cash	18,300
		Bal 12/31	65,650

Service Revenue ( Racing)

		Cash	26,800
		Bal 12/31	26,800

Advertising Expense:

Bal 7/ 31	1,080
Bal 7/31	1,080

Legal Fees Expense:

Bal 7/31	1,800
Bal 12/31	1,800

Salaries Expense:

Cash	1,200
Bal 12/31	1,200

Supplies( Office ) Expense:

Supplies ( Office)	1,490
Bal 12/31	1,490

Supplies ( Racing) Expense:

Supplies ( Racing)	2,340
Bal 12/31	2,340

Insurance Expense:

Prepaid Insurance	2,820
Bal 12/31	2,820

Rent Expense:

Prepaid Rent	1,360
Bal 12/31	1,360

Depreciation Expense:

Accumulated Depreciation : Equipment	7,200
Bal 12/31	7,200

Miscellaneous Expense:

Cash	1,600
Bal 12/31	1,600

Interest Expense:

Interest Payable	1,125
Bal 12/31	1,125

Income Tax Expense:

Income Taxes Payable	13,600
Bal 12/31	13,600