Great Adventures Problem 3-1 [The following information applies to the questions

Question

Great Adventures Problem 3-1 [The following information applies to the questions displayed below. The following transactions occur over the remainder of the year. Great Adventures 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. The company purchases 14 kayaks, costing $19,600. Aug. 1 4 Aug. Aug. 10 Twenty additional kayakers pay $3,200 ($160 each), in addition to the $7,700 that was paid in advance on July 30, on the day of the clinic. Tony conducts the first kayak clinic. Tony conducts a second kayak clinic, and the company receives $10,500 cash. Office supplies of $1,600 purchased on July 4 are paid in full. 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 $3,120 ($260 per month). 17 Aug. Aug. 24 Sep. 1 Sep. 21 Tony conducts a rock-climbing clinic. The company receives $14,000 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 $19,60o. Tony decides 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 $500. Dec. 1

Explanation / Answer

Analysis of the transactions with the accounting equation is given below for reference:

(4) Adjusted Trial Balance and (8) Post Closing Trial Balance Trial Balance Transactions Unadjusted Adjustments Adjusted Income Post Closing 31st July 1st Aug to 31st Dec TB-31 Dec 31st Dec Trial Balance Statement Trial Balance ASSETS Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Cash 19390 112300 28300 103390 103390 103390 Prepaid Insurance 4320 4320 2160 2160 2160 Supplies (Office) 1800 1800 1420 380 380 Supplies (Racing) 2300 2300 2200 100 100 Prepaid Rent 2400 2400 800 1600 1600 Equipment (Bikes) 15600 15600 15600 15600 Equipment (Kayaks) 15400 15400 15400 15400 Accumulation depn 7400 7400 7400 LIABILITIES Loan 38300 38300 38300 38300 Accounts payable 1800 500 2300 2300 2300 Unearned Revenue 6600 6600 6600 0 Income Tax Payable 13500 13500 13500 Interest accrued 950 950 950 EQUITY Common Stock 30000 30000 30000 30000 Retained earnings 46180 DIVIDEND 4100 4100 4100 REVENUES Service Revenue(clinic) 5200 74000 79200 6600 85800 85800 EXPENSES Advertising expenses 1190 1190 1190 1190 Legal fees expense 1300 1300 1300 1300 Insurance Expense 2160 2160 2160 Rent expense 800 800 800 Office supplies expnese 1420 1420 1420 Racing Supplies expense 2200 2200 2200 Interest Expense 950 950 950 Income Tax expense 13500 13500 13500 Depreciation expense 7400 7400 7400 Salary Expense 2800 2800 2800 2800 Misc Exp 1800 1800 1800 1800 43600 43600 141100 141100 156400 156400 35030 35030 178250 178250 35520 85800 138630 138630 Net Income 50280 85800 85800 138630 138630 5-a) INCOME STATEMENT Revenue (Clinic) 85800 Expenses: Advertising expenses 1190 Legal fees expense 1300 Insurance Expense 2160 Rent expense 800 Office supplies expense 1420 Racing Supplies expense 2200 Salary Expense 2800 Depreciation expense 7400 Misc Exp 1800 21070 Operating Income 64730 Less: Other Expense: Interest Expense 950 Income Tax expense 13500 14450 Net Income 50280 5-b) STATEMENT OF STOCKHOLDERS EQUITY (July 1 to Dec 31) Common Retained Stock Earnings Opening balance 0 0 Add: Stock issued 30000 Add Net Income 50280 30000 50280 Less :Dividend 0 4100 Closing balance 30000 46180 5-c) BALANCE SHEET: ASSETS Current Assets: Cash 103390 Prepaid Insurance 2160 Supplies (Office) 380 Supplies (Racing) 100 Prepaid Rent 1600 107630 Fixed Assets: Equipment (Bikes) 15600 Equipment (kayaks) 15400 31000 Less: Accumulated Depn 7400 23600 131230 LIABILITIES: Current Liabilities: Accounts payable 2300 Unearned Revenue 0 Income Tax Payable 13500 Interest accrued 950 16750 Long Term Liabilities: Loan 38300 38300 Total liabilities 55050 Equity: Common Stock 30000 Retained Earnings 46180 76180 Total liabilities & Equity 131230 6) ADJUSTMENT ENTRIES: Debit Credit 1) Depreciation Expense 7400 Accumulated Depreciation (Bikes & Kayaks) 7400 (depreciation for the period 1st july to 31st december) 2) Office Supplies Expense 1420 Supplies(Office) 1420 (office supplies used) 3) Racing Supplies expense 2200 Supplies(Racing) (racing supplies used) 4) Interest Expense 950 Interest Accrued 950 (interest for 5 months provided) 5) Rent Expense 800 Rent Prepaid 800 (rent adjusted for 4 months) 6) Insurance Expense 2160 Preaid Insurance 2160 (half year's insurance expensed) 7) Unearned Revenue 6600 Service Revenue (clinic) 6600 8) Income Tax Expense 13500 Income tax Payable 13500 (tax expense for the half year) CLOSING ENTRIES: Income Summary 35520 Advertising expenses 1190 Legal fees expense 1300 Insurance Expense 2160 Rent expense 800 Office supplies expense 1420 Racing Supplies expense 2200 Salary Expense 2800 Depreciation expense 7400 Misc Exp 1800 Interest Expense 950 Income Tax expense 13500 (expenses closed to income summary) Revenue (clinic) 85800 Income summary 85800 (revenue closed to income summary) Income summary 50280 Retained earnings 50280 (Net income closed to retained earnings) Retained Earnings 4100 Dividend 4100 (dividend closed to retained earnings)

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