On July 1, 2018, Tony and Suzie organize their new company as acorporation, Great Adventures Inc. The following transactions occurfrom August 1 through December 31. Also, the balances are providedfor the month ended July 31.
The articles of incorporation state that the corporation will sell27,000 shares of common stock for $1 each. Each share of stockrepresents a unit of ownership. Tony and Suzie will act asco-presidents of the company. The following business activitiesoccur 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 permonth) to cover injuries to participants during outdoorclinics.
Jul. 2 Pay legal fees of $2,000 associated withincorporation.
Jul. 4 Purchase office supplies of $1,500 on account.
Jul. 7 Pay for advertising of $280 to a local newspaper for anupcoming mountain biking clinic to be held on July 15. Attendeeswill 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 bikingclinic.
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 akayaking clinic to be held on August 10. Attendees can pay $100 inadvance or $150 on the day of the clinic.
Jul. 30 Great Adventures receives cash of $4,000 in advance from 40kayakers for the upcoming kayak clinic.
Aug. 1 Great Adventures obtains a $41,000 low-interest loan for thecompany from the city council, which has recently passed aninitiative encouraging business development related to outdooractivities. The loan is due in three years, and 6% annual interestis 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), inaddition to the $4,000 that was paid in advance on July 30, on theday of the clinic. Tony conducts the first kayak clinic.
Aug. 17 Tony conducts a second kayak clinic, and the companyreceives $12,500 cash.
Aug. 24 Office supplies of $1,500 purchased on July 4 are paid infull.
Sep. 1 To provide better storage of mountain bikes and kayaks whennot in use, the company rents a storage shed, purchasing a one-yearrental 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 practicehow to understand a topographical map, read an altimeter, use acompass, and orient through heavily wooded areas. The companyreceives $19,800 cash.
Dec. 1 Tony decides to hold the company’s first adventure race onDecember 15. Four-person teams will race from checkpoint tocheckpoint using a combination of mountain biking, kayaking,orienteering, trail running, and rock-climbing skills. The firstteam in each category to complete all checkpoints in order wins.The entry fee for each team is $570.Dec. 5 To help organize andpromote the race, Tony hires his college roommate, Victor. Victorwill 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 willbe held. The amount is recorded as a miscellaneous expense.Dec. 12The company purchases racing supplies for $2,700 on account due in30 days. Supplies include trophies for the top-finishing teams ineach category, promotional shirts, snack foods and drinks forparticipants, and field markers to prepare the racecourse.Dec. 15The company receives $22,800 cash from a total of forty teams, andthe 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 asof December 31, 2018.
a. Depreciation of the mountain bikes purchased on July 8 andkayaks 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, $390remains.
e. Interest expense on the $41,000 loan obtained from the citycouncil on August 1 should be recorded.
f. Of the $2,700 of racing supplies purchased on December 12, $130remains.
g. Suzie calculates that the company owes $13,100 in incometaxes.
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 ofDecember 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 astatement of stockholders’ equity. All account balances on July 1were zero.
4. Prepare a classified balance sheet as ofDecember 31, 2018. (Amounts to be deducted should beindicated with a minus sign.)
