Tony and Suzie graduate from college in May 2018 and begin developing their new
ID: 2331894 • 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 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.
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:
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.Explanation / Answer
1. In the books of Great Adventures Inc. :
2.
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