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 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 $4,800 ($400 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 $1,600 on account.
Jul.		7		Pay for advertising of $340 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $60 on the day of the clinic.
Jul.		8		Purchase 10 mountain bikes, paying $17,400 cash.
Jul.		15		On the day of the clinic, Great Adventures receives cash of $3,000 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 $3,500.
Jul.		24		Pay for advertising of $860 to a local radio station for a kayaking clinic to be held on August 10. Attendees can pay $140 in advance or $190 on the day of the clinic.
Jul.		30		Great Adventures receives cash of $7,000 in advance from 50 kayakers for the upcoming kayak clinic.

Aug.	1		Great Adventures obtains a $39,000 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 $22,400 cash.
Aug.	10		Twenty additional kayakers pay $3,800 ($190 each), in addition to the $7,000 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 $11,700 cash.
Aug.	24		Office supplies of $1,600 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 $3,000 ($250 per month).
Sep.	21		Tony conducts a rock-climbing clinic. The company receives $14,800 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 $18,900 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 $520.
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 $1,000 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 $2,100 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 $20,800 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 $4,100 ($2,050 to Tony and $2,050 to Suzie).
Dec.	31		Using his personal money, Tony purchases a diamond ring for $5,000. 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 $7,960.

B- Six months’ worth of insurance has expired.

C- Four months’ worth of rent has expired.

D- Of the $1,600 of office supplies purchased on July 4, $370 remains.

E- Interest expense on the $39,000 loan obtained from the city council on August 1 should be recorded.

F- Of the $2,100 of racing supplies purchased on December 12, $210 remains.

G- Suzie calculates that the company owes $14,500 in income taxes.

Requirements:

	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

Answer 1

1. In the books of Great Adventures Inc. :

Date	General Journal	Debit	Credit
		$	$
Jul 1	Cash	24,000
	Common Stock		24,000
Jul 1	Prepaid Insurance	4,800
	Cash		4,800
July 2	Legal Fees Expense	1,200
	Cash		1,200
July 4	Office Supplies	1,600
	Accounts Payable		1,600
July 7	Advertising Expense	340
	Cash		340
July 8	Equipment : Bikes	17,400
	Cash		17,400
July 15	Cash	3,000
	Revenue: Clinic		3,000
July 22	Cash	3,500
	Revenue : Clinic		3,500
July 24	Advertising Expense	860
	Cash		860
July 30	Cash	7,000
	Deferred Revenue		7,000
Aug 1	Cash	39,000
	Note Payable		39,000
Aug 4	Equipment : Kayaks	22,400
	Cash		22,400
Aug 10	Cash	3,800
	Deferred Revenue	7,000
	Revenue: Clinic		10,800
Aug 17	Cash	11,700
	Revenue:Clinic		11,700
Aug 24	Accounts Payable	1,600
	Cash		1,600
Sep 1	Prepaid Rent	3,000
	Cash		3,000
Sep 21	Cash	14,800
	Revenue: Clinic		14,800
Oct 17	Cash	18,900
	Revenue: Clinic		18,900
Dec 1	No journal entry required
Dec 5	No journal entry required
Dec 8	Miscellaneous Expense	1,000
	Cash		1,000
Dec 12	Racing Supplies	2,100
	Accounts Payable		2,100
Dec 15	Cash	20,800
	Revenue: Racing		20,800
Dec 16	Salaries Expense	2,000
	Cash		2,000
Dec 31	Dividends	4,100
	Cash		4,100
Dec 31	No journal entry required

2.

Adjustment #	General Journal	Debit	Credit
		$	$
A.	Depreciation Expense	7,960
	Accumulated Depreciation : Equipment		7,960
B.	Insurance Expense	2,400
	Prepaid Insurance		2,400
C.	Rent Expense	1,000
	Prepaid Rent		1,000
D.	Office Supplies Expense	1,230
	Office Supplies		1,230
E.	Interest Expense ( $ 39,000 x 6% x 5/12)	975
	Interest Payable		975
F.	Racing Supplies Expense	1,890
	Racing Supplies		1,890
G.	Income Tax Expense	14,500
	Income Taxes Payable		14,500