Tony and Suzie graduate from college in May 2018 and begin developing their new
ID: 2329955 • Letter: T
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 21,000 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.
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 $4,460.
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, $370 remains.
e) Interest expense on the $38,000 loan obtained from the city council on August 1 should be recorded.
f) Of the $2,600 of racing supplies purchased on December 12, $160 remains.
g) Suzie calculates that the company owes $14,200 in income taxes.
*Requirement(s):
Jul. 1 Sell $10,500 of common stock to Suzie. Jul. 1 Sell $10,500 of common stock to Tony. Jul. 1 Purchase a one-year insurance policy for $5,400 ($450 per month) to cover injuries to participants during outdoor clinics. Jul. 2 Pay legal fees of $1,500 associated with incorporation. Jul. 4 Purchase office supplies of $1,500 on account. Jul. 7 Pay for advertising of $350 to a local newspaper for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $50 on the day of the clinic. Jul. 8 Purchase 10 mountain bikes, paying $10,200 cash. Jul. 15 On the day of the clinic, Great Adventures receives cash of $2,000 from 40 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 $2,550. Jul. 24 Pay for advertising of $880 to a local radio station for a kayaking clinic to be held on August 10. Attendees can pay $120 in advance or $170 on the day of the clinic. Jul. 30 Great Adventures receives cash of $7,200 in advance from 60 kayakers for the upcoming kayak clinic.Explanation / Answer
GREAT ADVENTURE INC.
GREAT ADVENTURE INC.
Journal Entries Date Account Debit Credit Jul. 1 Cash $10,500.00 Common Stock $10,500.00 (Sale of common stock to Suize) Jul. 1 Cash $10,500.00 Common Stock $10,500.00 (Sale of common stock to Tony) Jul. 1 Pre-paid insurance $ 5,400.00 Cash $ 5,400.00 (Purchase of one year insurance policy) Jul. 2 Legal fee $ 1,500.00 Cash $ 1,500.00 (Payment of legal fee for incorporation) Jul.4 Office Supplies $ 1,500.00 Accounts Payable $ 1,500.00 (Purchase of office supplies on account) Jul. 7 Advertising $ 400.00 Cash $ 400.00 (Payment of advertising for biking clinic) Jul.8 Equipment $10,200.00 Cash $10,200.00 (Purchase of 10 bikes) Jul.15 Cash $ 2,000.00 Service Revenue $ 2,000.00 (Cash received from bikers) Jul.22 Cash $ 2,550.00 Service Revenue $ 2,550.00 (Cash received from bikers) Jul. 24 Advertising $ 880.00 Cash $ 880.00 (Payment of advertising for biking clinic) Jul.30 Cash $ 7,200.00 Deferred Revenue $ 7,200.00 (Advance paid by 80 bikers) Aug.1 Cash $38,000.00 6% Loan $38,000.00 (Loan received from city council) Aug. 4 Equipment (Kayaks) $12,100.00 Cash $12,100.00 (Purchase of 14 Kayaks for cash) Aug.10 Cash $ 3,400.00 Service Revenue $ 3,400.00 (Cash received from kayakers) Aug.10 Deferred Revenue $ 7,200.00 Service Revenue $ 7,200.00 (Transfer of Deferred Revenue to Service Revenue) Aug. 17 Cash $12,200.00 Service Revenue $12,200.00 (Cash received from kayakers) Aug. 24 Accounts Payable $ 1,500.00 Cash $ 1,500.00 (Payment for office supplies purchased on Jul.4) Sep. 1 Prepaid Rent $ 2,760.00 Cash $ 2,760.00 (Rent paid for one year) Sep.21 Cash $14,200.00 Service Revenue $14,200.00 (Cash received for rock-climbing clinic) Oct.17 Cash $19,000.00 Service Revenue $19,000.00 (Cash received for orienteering clinic) Dec. 1 No entry required Dec. 5 No entry required Dec.8 Miscellaneous Exp. $ 1,200.00 Cash $ 1,200.00 (Payment for permit from state park) Dec.12 Racing Supplies $ 2,600.00 Accounts Payable $ 2,600.00 (Payment for race supplies) Dec.15 Cash $24,800.00 Racing Revenue $24,800.00 (Cash received from 40 teams) Dec. 16 Salary $ 2,800.00 Cash $ 2,800.00 Dec.31 Dividend $ 3,200.00 Cash $ 3,200.00 Dec. 31 No entry required for purchase of ring.