Tony and Suzie graduate from college in May 2012 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, 2012, Tony and Suzie organize their new company as a corporation, Great Adventures Inc. The articles of incorporation state that the corporation will sell 34,000 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.
Jul. 1 Suzie purchases $17,000 of Great Adventures' common stock using cash she saved during college.
1 Tony purchases $17,000 of Great Adventures' common stock by borrowing from a local bank using his personal vehicle as collateral.
1 Suzie purchases a one-year insurance policy for $4,680 ($390 per month) to cover injuries to participants during outdoor clinics.
2 The company pays legal fees of $1,000 associated with incorporation.
4 Suzie purchases office supplies of $1,000 on account.
7 Suzie pays advertising of $260 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.
8 Tony purchases 10 mountain bikes, paying $10,800 cash.
15 On the day of the clinic, Great Adventures receives cash of $2,000 from 50 bikers. Tony conducts the mountain biking clinic.
22 Because of the success of the first mountain biking clinic, Tony holds another mountain biking clinic and the company receives $2,300.
24 Suzie pays advertising of $770 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.
30 Great Adventures receives cash of $6,000 in advance from 60 kayakers for the upcoming kayak clinic.
Aug.1 Suzie applies for and obtains a $38,000 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, costing $28,500.
Aug.10 Twenty additional kayakers pay $3,400 ($170 each), in addition to the $6,000 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 receives $12,100 cash.
Aug.24 Office supplies of $1,000 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 $4,800 ($400 per month).
Sep.21 Tony conducts a rock-climbing clinic. The company receives $14,600 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. Clinic fees total $18,600.
Dec.1 Tony decides to hold the companys 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 $40 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 Forty teams pay a total of $25,600 to race. The race is held.
Dec.16 The company pays Victors salary of $1,600.
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 $4,900. Tony surprises Suzie by proposing that they get married. Suzie accepts!
Required:
Record each transaction in journal entry form
Post each transaction to T accounts (Ledger)
Prepare an unadjusted trial balance
Prepare adjusting entries
The following information relates to year-end adjusting entries as of December 31, 2012.
a.Depreciation of the mountain bikes purchased on July 8 and kayaks purchased on August 4 totals $8,700.
b.Six months worth of insurance has expired.
c.Four months worth of rent has expired.
d.Of the $1,000 of office supplies purchased on July 4, $280 remains.
e.Interest expense on the $38,000 loan obtained from the city council on August 1 should be recorded.
f.Of the $2,500 of racing supplies purchased on December 12, $230 remains.
g.Suzie calculates that the company owes $13,300 in income taxes.
Post adjusting entries to the T accounts
Prepare an adjusted trial balance
Prepare the financial statements for the period
Income Statement
Statement of Stockholder Equity
Balance Sheet