Question

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 22,000 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 $11,000 of common stock to Suzie.
Jul. 1 Sell $11,000 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 $1,800 associated with incorporation.
Jul. 4 Purchase office supplies of $2,000 on account.
Jul. 7 Pay for advertising of $320 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $50 the day of the clinic.
Jul. 8 Purchase 10 mountain bikes, paying $18,200 cash.
Jul. 15 On the day of the clinic, Great Adventures receives cash of $3,500 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 $4,050.
Jul. 24 Pay for advertising of $800 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 $9,800 in advance from 70 kayakers for the upcoming kayak clinic.
Aug. 1 Great Adventures obtains a $37,000 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 $19,600 cash.
Aug. 10 Twenty additional kayakers pay $3,800 ($190 each), in addition to the $9,800 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 $11,000 cash.
Aug. 24 Office supplies of $2,000 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 $13,300 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 $19,300 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 $510.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 $1,100 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 $2,500 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 $20,400 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 $3,700 ($1,850 to Tony and $1,850 to Suzie).
Dec. 31 Using his personal money, Tony purchases a diamond ring for $5,300. 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 $2,000 of office supplies purchased on July 4, $330 remains.
e. Interest expense on the $37,000 loan obtained from the city council on August 1 should be recorded.
f. Of the $2,500 of racing supplies purchased on December 12, $210 remains.
g. Suzie calculates that the company owes $14,300 in income taxes.
  
Assume the following ending balances for the month of July.

	Balance
Cash	$	12,470
Prepaid insurance		5,760
Supplies (Office)		2,000
Equipment (Bikes)		18,200
Accounts payable		2,000
Deferred revenue		9,800
Common stock		22,000
Service revenue (Clinic)		7,550
Advertising expense		1,120
Legal fees expense		1,800

Required:
1. Record transactions from July 1 through December 31.

2. Record adjusting entries as of December 31, 2018.

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

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.

6. Record closing entries as of December 31, 2018.

Answer 1

1. In the books of Great Adventures Inc. :

Date	Account Titles	Debit	Credit
2018		$	$
July 1	Cash	22,000
	Common Stock		22,000
July 1	Prepaid Insurance	5,760
	Cash		5,760
July 2	Legal Fees Expense	1,800
	Cash		1,800
July 4	Supplies ( Office )	2,000
	Accounts Payable		2,000
July 7	Advertising Expense	320
	Cash		320
July 8	Equipment ( Bikes)	18,200
	Cash		18,200
July 15	Cash	3,500
	Service Revenue ( Clinic )		3,500
July 22	Cash	4,050
	Service Revenue ( Clinic )		4,050
July 24	Advertising Expense	800
	Cash		800
July 30	Cash	9,800
	Deferred Revenue		9,800
Aug 1	Cash	37,000
	Note Payable		37,000
Aug 4	Equipment ( Kayaks )	19,600
	Cash		19,600
Aug 10	Cash	3,800
	Deferred Revenue	9,800
	Service Revenue ( Clinic )		13,600
Aug 17	Cash	11,000
	Service Revenue ( Clinic )		11,000
Aug 24	Accounts Payable	2,000
	Cash		2,000
Sep 1	Prepaid Rent	4,080
	Cash		4,080
Sep 21	Cash	13,300
	Service Revenue ( Clinic )		13,300
Oct 17	Cash	19,300
	Service Revenue ( Clinic )		19,300
Dec 1	No JE required	0	0
Dec 5	No JE required	0	0
Dec 8	Miscellaneous Expense	1,100
	Cash		1,100
Dec 12	Supplies ( Racing )	2,500
	Accounts Payable		2,500
Dec 15	Cash	20,400
	Service Revenue ( Racing )		20,400
Dec 16	Salaries Expense	1,200
	Cash		1,200
Dec 31	Dividends	3,700
	Cash		3,700
Dec 31	No JE required	0	0

2. Adjusting Entries:

Date	Account Titles	Debit	Credit
December 31,2018		$	$
a.	Depreciation Expense	7,900
	Accumulated Depreciation		7,900
b.	Insurance Expense	2,880
	Prepaid Insurance		2,880
c.	Rent Expense	1,360
	Prepaid Rent		1,360
d.	Office Supplies Expense	1,670
	Supplies ( Office )		1,670
e.	Interest Expense	925
	Interest Payable		925
f.	Racing Supplies Expense	2,290
	Supplies ( Racing )		2,290
g.	Income Tax Expense	14,300
	Income Taxes Payable		14,300

4.

Great Adventures Inc. Adjusted Trial Balance December 31, 2018
Account Titles	Debit	Credit
	$	$
Cash	85,590
Supplies ( Office )	330
Supplies ( Racing )	210
Prepaid Insurance	2,880
Prepaid Rent	2,720
Equipment ( Bikes)	18,200
Equipment ( Kayaks)	19,600
Accumulated Depreciation : Equipment		7,900
Accounts Payable		2,500
Incomes Taxes Payable		14,300
Interest Payable		925
Notes Payable		37,000
Common Stock		22,000
Dividends	3,700
Service Revenue ( Clinic )		64,750
Service Revenue ( Racing )		20,400
Salaries Expense	1,200
Depreciation Expense	7,900
Office Supplies Expense	1,670
Racing Supplies Expense	2,290
Insurance Expense	2,880
Rent Expense	1,360
Advertising Expense	1,120
Legal Fees Expense	1,800
Interest Expense	925
Income Tax Expense	14,300
Miscellaneous Expense	1,100
Totals	$169,775	$169,775