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 27,000 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 $13,500 of common stock to Suzie.
Jul. 1 Sell $13,500 of common stock to Tony.
Jul. 1 Purchase a one-year insurance policy for $5,760 ($480 per month) to cover injuries to participants during outdoor clinics.
Jul. 2 Pay legal fees of $2,000 associated with incorporation.
Jul. 4 Purchase office supplies of $1,500 on account.
Jul. 7 Pay for advertising of $280 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $40 the day of the clinic.
Jul. 8 Purchase 10 mountain bikes, paying $18,900 cash.
Jul. 15 On the day of the clinic, Great Adventures receives cash of $2,400 from 60 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 $2,950.
Jul. 24 Pay for advertising of $710 to a local radio station for a kayaking clinic to be held on August 10. Attendees can pay $100 in advance or $150 on the day of the clinic.
Jul. 30 Great Adventures receives cash of $4,000 in advance from 40 kayakers for the upcoming kayak clinic.
Aug. 1 Great Adventures obtains a $41,000 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 $19,500 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 $12,500 cash.
Aug. 24 Office supplies of $1,500 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 $14,900 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 $19,800 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 $570.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 $1,900 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 $2,700 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 $22,800 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 $3,400 ($1,700 to Tony and $1,700 to Suzie).
Dec. 31 Using his personal money, Tony purchases a diamond ring for $4,600. 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 $7,900.
b. Six months’ worth of insurance has expired.
c. Four months’ worth of rent has expired.
d. Of the $1,500 of office supplies purchased on July 4, $390 remains.
e. Interest expense on the $41,000 loan obtained from the city council on August 1 should be recorded.
f. Of the $2,700 of racing supplies purchased on December 12, $130 remains.
g. Suzie calculates that the company owes $13,100 in income taxes.
  
Assume the following ending balances for the month of July.

	Balance
Cash	$	8,700
Prepaid insurance		5,760
Supplies (Office)		1,500
Equipment (Bikes)		18,900
Accounts payable		1,500
Deferred revenue		4,000
Common stock		27,000
Service revenue (Clinic)		5,350
Advertising expense		990
Legal fees expense		2,000

1. Prepare an adjusted trial balance as of December 31, 2018.

2. For the period July 1 to December 31, 2018, prepare an income statement.

3. For the period July 1 to December 31, 2018, prepare a statement of stockholders’ equity. All account balances on July 1 were zero.

4. Prepare a classified balance sheet as of December 31, 2018. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Part 1	Adjusted Trial Balance				Part 3	Retained Earning Statement
	Account	Debit	Credit
	Cash	$ 98,200			Beginning Balance			$           -
	Office Supplies	$        390			Add: Net Income			$ 46,675
	Prepaid Rent	$    2,000			Less: Dividend			$   -3,400
	Racing Supplies	$        130			Ending Balance			$ 43,275
	Prepaid Insurance	$    2,880
	Kayak and Mountain Bikes	$ 38,400			Part 4	Balance Sheet
	Accumulated Depreciation		$    7,900
	Accounts Payable		$    2,700		Assets
	Income Tax Payable		$ 13,100		Current Assets:
	Interest Payable		$    1,025		Cash			$ 98,200
	Note Payable		$ 41,000		Office Supplies			$        390
	Common Stock		$ 33,000		Prepaid Rent			$    2,000
	Dividends	$    3,400			Racing Supplies			$        130
	Bike Clinic Revenue		$    5,350		Prepaid Insurance			$    2,880
	Kayak Clinic Revenue		$ 19,500		Total Current Assets			$103,600
	Orientation Clininc Revenue		$ 19,800		Kayak and Mountain Bikes		$ 38,400
	Racing Revenue		$ 22,800		Less:Accumulated Depreciation		$   -7,900	$ 30,500
	Rock Climbing Revenue		$ 14,900
	Racing Supplies Expense	$    2,570			Total Assets			$134,100
	Rent Expense	$    1,000
	Salaries Expense	$    1,200			Liabilities
	Supplies Expense	$    1,110			Current Liabilities:
	Miscellaneous Expense	$    1,900			Accounts Payable			$    2,700
	Legal Fee	$    2,000			Income Tax Payable			$ 13,100
	Insurance Expense	$    2,880			Interest Payable			$    1,025
	Depreciation Expense	$    7,900			Total Current Liabilities			$ 16,825
	Advertising Expense	$        990			Note Payable			$ 41,000
	Interest Expense	$    1,025			Total Liabilities			$ 57,825
	Income Tax Expense	$ 13,100			Stockholder's Equity
					Common Stock			$ 33,000
	Total	$181,075	$181,075		Retained earning			$ 43,275
					Total Stockholder's Equity			$ 76,275
Part 2	Income Statement				Total Liabilities and Equity			$134,100
	Bike Clinic Revenue		$    5,350
	Kayak Clinic Revenue		$ 19,500
	Orientation Clininc Revenue		$ 19,800
	Racing Revenue		$ 22,800
	Rock Climbing Revenue		$ 14,900
	Total Revenue		$ 82,350
	Less: Operating Expense
	Racing Supplies Expense	$    2,570
	Rent Expense	$    1,000
	Salaries Expense	$    1,200
	Supplies Expense	$    1,110
	Miscellaneous Expense	$    1,900
	Legal Fee	$    2,000
	Insurance Expense	$    2,880
	Depreciation Expense	$    7,900
	Advertising Expense	$        990
	Total Operating Expense		$ -21,550
	Operating Income		$ 60,800
	Less: Interest Expense		$   -1,025
	Income before tax		$ 59,775
	Less: Income tax		$ -13,100
	Net Income		$ 46,675