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Great Adventures Problem 3-1 [The following information applies to the questions displayed below.]    On July...

Great Adventures Problem 3-1

[The following information applies to the questions displayed below.]
  
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 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 business activities occur during July for Great Adventures.
  
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 $5,160 ($430 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 $1,400 on the account.
Jul. 7 Pay for advertising of $240 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 $16,900 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 $3,600.
Jul. 24 Pay for advertising of $680 to a local radio station for a kayaking clinic to be held on August 10. 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 $42,000 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 $14,000 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 $12,000 cash.
Aug. 24 Office supplies of $1,400 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 $3,240 ($270 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 $18,100 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 $640.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 $1,500 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 $2,600 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 $25,600 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 $4,100 ($2,050 to Tony and $2,050 to Suzie).
Dec. 31 Using his personal money, Tony purchases a diamond ring for $5,400. 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 $8,600.
b. Six months’ worth of insurance has expired.
c. Four months’ worth of rent has expired.
d. Of the $1,400 of office supplies purchased on July 4, $330 remains.
e. Interest expense on the $42,000 loan obtained from the city council on August 1 should be recorded.
f. Of the $2,600 of racing supplies purchased on December 12, $170 remains.
g. Suzie calculates that the company owes $13,700 in income taxes.
  
Assume the following ending balances for the month of July.

Balance
  Cash $ 13,520    
  Prepaid insurance 5,160    
  Supplies (Office) 1,400    
  Equipment (Bikes) 16,900    
  Accounts payable 1,400    
  Deferred revenue 7,700    
  Common stock 24,000    
  Service revenue (Clinic) 6,600    
  Advertising expense 920    
  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.)

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 with minus sign.)

6. Record closing entries as of December 31, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
7. Post the closing entries of retained earnings to the T-account.

8. Prepare a post-closing trial balance as of December 31, 2018.

Solutions

Expert Solution

Loan from City Council Cash Equipment(Bikes & Kayaks) Deferred revenue
Debit Credit Debit Credit Debit Credit Debit Credit
1-Aug 42000 Aug.1 13520 1-Aug 16900 1-Aug 7700
42000 4-Aug 14000 10-Aug 7700
4-Aug 14000 c/d 30900 c/d 0
10-Aug 3200
17-Aug 12000
24-Aug 1400
1-Sep 3240
21-Sep 14500
17-Oct 18100
8-Dec 1500
15-Dec 25600
16-Dec 1200
31-Dec 4100
c/d 103480
Service revenue (Clinic) Supplies (Office)   Accounts payable Prepaid rent
1-Aug 6600 1-Aug 1400 1-Aug 1400 1-Sep 3240
10-Aug 10900 d. 1070 24-Aug 1400 c. 1080
17-Aug 12000 c/d 330 12-Dec 2600 c/d 2160
21-Sep 14500 c/d 2600
17-Oct 18100
15-Dec 25600
c/d 87700
Miscellaneous expense Salary expense Dividend expense Depreciation expense
8-Dec 1500 16-Dec 1200 31-Dec 4100 a. 8600
c/d 1500 c/d 1200 c/d 4100 c/d 8600
Acc. Depn.Eqpt. Prepaid Insurance Insurance expense Rent expense
a. 8600 1-Aug 5160 b. 2580 c. 1080
c/d 8600 b. 2580 c/d 2580 c/d 1080
c/d 2580
Racing Supplies Racing Supplies expense Office Supplies Expense Interest expense
12-Dec 2600 f. 2430 d. 1070 e. 42
f. 2430 c/d 2430 c/d 1070 c/d 42
c/d 170
Interest payable Income tax expense Income tax payable
e. 42 g. 13700 g. 13700
c/d 42 c/d 13700 c/d 13700
Great Adventures
Trial balance
As at Dec 31, 2018 Debit Credit
Assets
Current assets
Cash 103480
Prepaid rent 2160
Prepaid Insurance 2580
Office supplies 330
Racing Supplies 170
Fixed assets:
Equipment(Bikes & Kayaks) 30900
Acc. Depn.Eqpt. 8600
Liabilities
Accounts payable 2600
Income tax payable 13700
Loan from City Council 42000
Interest payable 42
Equity
Common stock 24000
Dividend expense 4100
Service revenue (Clinic) 87700
Expenses:
Legal fees expense 1800
Racing Supplies expense 2430
Office Supplies Expense 1070
Salary expense 1200
Advertising expense 920
Insurance expense 2580
Rent expense 1080
Depreciation expense 8600
Interest expense 42
Miscellaneous expense 1500
Income tax expense 13700
Total 178642 178642
Income statement
For the 6-month ended Dec.31,2018
Service revenue (Clinic) 87700
Less: Operating Expenses:
Legal fees expense 1800
Racing Supplies expense 2430
Office Supplies Expense 1070
Salary expense 1200
Advertising expense 920
Insurance expense 2580
Rent expense 1080
Depreciation expense 8600
Interest expense 42
Miscellaneous expense 1500
Total Operating Expenses 21222
Income before tax 66478
Less:Income tax expense 13700
Net Income 52778
Stockholders' equity
Capital balances 24000
Add: Retained Earnings:
         Current yr. net income 52778
         Less: Dividends paid -4100 48678
Total Stockholders' equity 72678
Clasiified Balance sheet
As at Dec 31, 2018
Assets
Current assets
Cash 103480
Prepaid rent 2160
Prepaid Insurance 2580
Office supplies 330
Racing Supplies 170
Current assets 108720
Fixed assets:
Equipment(Bikes & Kayaks) 30900
Less:Acc. Depn.Eqpt. -8600
Net fixed assets 22300
Total Assets 131020
Liabilities & equity
Liabilities
Current Liabilities
Accounts payable 2600
Income tax payable 13700
Interest payable 42
Total Current Liabilities 16342
Long-term Liabilities
Loan from City Council 42000
Total Long-term Liabilities 42000
Total Liabilities 58342
Stockholders' Equity
Common stock 24000
Retained Earnings 48678
Total Equity 72678
Total Liabilities & equity 131020
Dec 31,Closing entries
Service revenue (Clinic) 87700
Income summary 87700
Income summary 34922
Legal fees expense 1800
Racing Supplies expense 2430
Office Supplies Expense 1070
Salary expense 1200
Advertising expense 920
Insurance expense 2580
Rent expense 1080
Depreciation expense 8600
Interest expense 42
Miscellaneous expense 1500
Income tax expense 13700
Income summary 52778
Retained Earnings 52778
Retained Earnings 4100
Dividend expense 4100
Post- Closing Trial balance
As at Dec 31, 2018 Debit Credit
Assets
Current assets
Cash 103480
Prepaid rent 2160
Prepaid Insurance 2580
Office supplies 330
Racing Supplies 170
Fixed assets:
Equipment(Bikes & Kayaks) 30900
Acc. Depn.Eqpt. 8600
Liabilities
Accounts payable 2600
Income tax payable 13700
Loan from City Council 42000
Interest payable 42
Equity
Common stock 24000
Retained Earnings 48678
Total 139620 139620

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