Question

Tony and Suzie graduate from college in May 2024 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, 2024, Tony and Suzie organize their new company as a corporation, Great Adventures Incorporated The articles of incorporation state that the corporation will sell 39,000 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.
July 1 Sell $19,500 of common stock to Suzie.
July 1 Sell $19,500 of common stock to Tony.
July 1 Purchase a one-year insurance policy for $4,440 ($370 per month) to cover injuries to participants during outdoor clinics.
July 2 Pay legal fees of $1,000 associated with incorporation.
July 4 Purchase office supplies of $1,400 on account.
July 7 Pay $310 to a local newspaper for advertising to appear immediately for an upcoming mountain biking clinic to be held on July 15. Attendees will be charged $40 the day of the clinic.
July 8 Purchase 10 mountain bikes, paying $11,300 cash.
July 15 On the day of the clinic, Great Adventures receives cash of $3,200 in total from 80 bikers. Tony and Suzie conducts the mountain biking clinic.
July 22 Because of the success of the first mountain biking clinic, Tony and Suzie holds another mountain biking clinic and the company receives $3,750.
July 24 Pay $880 to a local radio station for advertising to appear immediately. A kayaking clinic will be held on August 10, and attendees can pay $120 in advance or $170 on the day of the clinic.
July 30 Great Adventures receives total cash of $4,800 in advance from 40 kayakers for the upcoming kayak clinic.
The following transactions occur over the remainder of 2024.
August 1 Great Adventures obtains a $40,000 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.
August 4 The company purchases 14 kayaks, paying $14,300 cash.
August 10 Tony and Suzie conduct the first kayak clinic. In addition to the $4,800 that was received in advance from kayakers on July 30, the company receives additional cash of $3,400 from twenty new kayakers on the day of the clinic.
August 17 Tony and Suzie conducts a second kayak clinic, and the company receives $12,300 cash.
August 24 Office supplies of $1,400 purchased on July 4 are paid in full.
September 1 To provide better storage of mountain bikes and kayaks when not in use, the company rents a storage shed for one year, paying $4,440 ($370 per month) in advance.
September 21 Tony and Suzie conduct a rock-climbing clinic. The company receives $14,300 cash.
October 17 Tony and Suzie conduct 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 $18,800 cash.
December 1 Tony and Suzie decide 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 $530.
December 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.
December 8 The company pays $2,000 to purchase a permit from a state park where the race will be held. The amount is recorded as a miscellaneous expense.
December 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.
December 15 The company receives $21,200 cash from a total of forty teams, and the race is held.
December 16 The company pays Victor’s salary of $1,200.
December 31 The company pays a dividend of $3,800 ($1,900 to Tony and $1,900 to Suzie).
December 31 Using his personal money, Tony purchases a diamond ring for $4,800. Tony surprises Suzie by proposing that they get married. Suzie accepts and they get married!
For the period July 1 to December 31, 2024, prepare an income statement, statement of stockholders’ equity and classified balance sheet.

Answer 1

Debit (d) Credit (c)

1. Jul 01, 2021Cash(d) 10,000, Common Stock (c) 10,000

2. Jul 01, 2021 Cash(d) 10,000, Common Stock (c) 10,000

3. Jul 01, 2021 Prepaid Insurance (d) 4,800, Cash (c) 4,800

4. Jul 02, 2021 Legal Fees Expense (d) 1,500, Cash (c) 1,500

5. Jul 04, 2021 Supplies (Office) (d) 1,800, Accounts Payable (c) 1,800

6. Jul 07, 2021 Advertising Expense (d) 300, Cash (c) 300

7. Jul 08, 2021 Equipment (Bikes) (d) 12,000, Cash (c) 12,000

8. Jul 15, 2021 Cash (d) 2,000, Service Revenue (Clinic) (c) 2,000

9. Jul 22, 2021 Cash (d) 2,300, Service Revenue (Clinic) (c) 2,300

10. Jul 24, 2021 Advertising Expense (d) 700, Cash (c) 700

11. Jul 30, 2021Cash (d) 4,000, Deferred Revenue (c) 4,000

12. Aug 01, 2021Cash (d) 30,000, Notes Payable (c) 30,000

13. Aug 04, 2021 Equipment (Kayaks) (d) 28,000, Cash (c) 28,000

14. Aug 10, 2021 Cash (d) 3,000, Deferred Revenue (d) 4,000, Service Revenue (Clinic) (c) 7,000

15. Aug 17, 2021 Cash (d) 10,500, Service Revenue (Clinic) (c) 10,500

16. Aug 24, 2021 Accounts Payable (d) 1,800, Cash (c) 1,800

17. Sep 01, 2021 Prepaid Rent (d) 2,400, Cash (c) 2,400

18. Sep 21, 2021 Cash (d) 13,200, Service Revenue (Clinic) (c) 13,200

19. Oct 17, 2021 Cash (d) 17,900, Service Revenue (Clinic) (c) 17,900

20. Dec 01, 2021 No Journal Entry Required

21. Dec 05, 2021 No Journal Entry Required

22. Dec 08, 2021 Miscellaneous Expense (d) 1,200, Cash (c) 1,200

23. Dec 12, 2021 Supplies (Racing) (d) 2,800, Accounts Payable (c) 2,800

24. Dec 15, 2021 Cash (d) 20,000, Service Revenue (Racing) (c) 20,000

25. Dec 16, 2021 Salaries Expense (d) 2,000, Cash (c) 2,000

26. Dec 31, 2021 Dividends (d) 4,000, Cash (c) 4,000

27. Dec 31, 2021 No Journal Entry Required

28. Dec 31, 2021 Depreciation Expense (d) 8,000, Accumulated Depreciation (c) 8,000

29. Dec 31, 2021 Insurance Expense (d) 2,400, Prepaid Insurance (c) 2,400

30. Dec 31, 2021 Rent Expense (d) 800, Prepaid Rent (c) 800

31. Dec 31, 2021 Supplies Expense (Office) (d) 1,500, Supplies (Office) (c) 1,500

32. Dec 31, 2021 Interest Expense (d) 750, Interest Payable (c) 750

33. Dec 31, 2021 Supplies Expense (Racing) (d) 2,600, Supplies (Racing) (c) 2,600

34. Dec 31, 2021 Income Tax Expense (d) 14,000, Income Taxes Payable (c) 14,000

35. Dec 31, 2021 Service Revenue (Clinic) (d) 52,900, Service Revenue (Racing) (d) 20,000, Retained Earnings (c) 72,900

36. Dec 31, 2021 Retained Earnings (d) 35,750, Advertising Expense (c) 1,000, Depreciation Expense (c) 8,000, Income Tax Expense (c) 14,000, Insurance Expense (c) 2,400, Interest Expense (c) 750, Legal Fees Expense (c) 1,500, Miscellaneous Expense (c) 1,200, Rent Expense (c) 800, Salaries Expense (c) 2,000, Supplies Expense (Office) (c) 1,500, Supplies Expense (Racing) (c) 2,600

37. Dec 31, 2021 Retained Earnings (d) 4,000, Dividends (c) 4,000

Step-by-step explanation:

(General Journal: Office supplies used; $1,800 − $300 = $1,500Accrue five months interest not yet paid; $30,000 × 0.06 × 5/12 = $750Racing supplies used; $2,800 − $200 = $2,600)