C9-1 Accounting for Operating Activities (Including Depreciation) and Preparing
ID: 2901403 • Letter: C
Question
C9-1 Accounting for Operating Activities (Including Depreciation) and Preparing Financial Statements (Chapters 3, 4, 8, and 9) [LO 3-3, LO 4-2, LO 8-2, LO 9-2, LO 9-3] Grid Iron Prep Inc. (GIPI) is a service business incorporated in January 2013 to provide personal training for athletes aspiring to play college football. The following transactions occurred during the year ended December 31, 2013. a. GIPI issued stock in exchange for $100,000 cash. b. GIPI purchased a gymnasium building and gym equipment at the beginning of the year for $50,000, 80% of which related to the gymnasium and 20% to the equipment. c. GIPI paid $260 cash to have the gym equipment refurbished before it could be used. d. GIPI collected $36,000 cash in training fees during the year, of which $2,000 were customer deposits to be earned in 2014. e. GIPI paid $23,000 of wages and $7,000 in utilities. f. GIPI provided $4,000 in training during the final month of the year and expected collection in 2014. g. GIPI will depreciate the gymnasium building using the straight-line method over 20 years with a residual value of $2,000. Gym equipment will be depreciated using the double-declining method, with an estimated residual value of $2,250 at the end of its four-year useful life. h. GIPI received a bill for $350 of advertising done during December. The bill has not been paid or recorded. i. GIPI will record an estimated 3 percent of its Accounts Receivable as not collectible. j. GIPIs income tax rate is 30%. Assume depreciation for tax is the same amount as depreciation for financial reporting purposes.
Prepare journal entries to record the transactions and adjustments listed in (a)(j). (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Required: 1.Prepare journal entries to record the transactions and adjustments listed in (a)(j). (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
2. Prepare GIPIs annual income statement, statement of retained earnings, and classified balance sheet.Explanation / Answer
A
S. NO.
PARTICULARS
DEBIT
CREDIT
a
Bank A/C
100000
To Common Stock A/c
100000
[Issued stock for $100000.]
b
Gymnasium A/C
40000
Gym Equipment A/C
10000
To Bank A/C
50000
[Gymnasium = 80%*50000 = 40000. Gym Equipment = 20%*50000 = 10000.]
c
Gym Equipment A/C
260
To Bank A/C
260
[$260 paid to refurbuish equipments before using it.]
d
Bank A/C
36000
To Traning Fees Revenue A/C
34000
To Prepaid Traning Fees Revenue A/C
2000
[Payments received.]
e
Wages A/C
23000
Utilities A/C
7000
To Bank A/C
30000
[Expenses paid.]
f
Accounts Receivable A/C
4000
To Traning Fees Revenue A/C
4000
[Training fees to be received next year.]
g
Depreciation A/C
1900
To Accumulated Depreciation (Gym) A/C
1900
[Depreciation = (40000-38000)/20 = 1900]
Depreciation A/C
4005
To Accumulated Depreciation (Equip) A/C
4005
[Depreciation = 2*(10260-2250)/4 = 1900]
h
Advertisement A/C
350
To Accrued Advertisement A/C
350
[Advertisement expenses yet to be paid.]
i
Bad Debt Expenses A/C
120
To Allowance for Doubtful Debt A/C
120
[Making provision for bad debt.]
j
Income Tax A/C
487.5
To Bank A/C
487.5
[We assume Income Tax is paid at 30%.]
B
INCOME STATEMENT
PARTICULARS
AMOUNT
Revenue
38000
(-) Wages
23000
(-) Utilities
7000
(-) Advertisement
350
(-) Bad Debt
120
(-) Depreciation (Gym)
1900
(-) Depreciation (Equipment)
4005
EBT
1625
(-) Tax @ 30%
487.5
NET INCOME
1137.5
C
STATEMENT OF RETAINED EARNINGS
PARTICULARS
AMOUNT
Opening Balance
0
(+) Net Income
1137.5
(-) Dividends Declared
0
Closing Balance
1137.5
D
BALANCE SHEET
PARTICULARS
AMOUNT
AMOUNT
A. Assets
Non Current Assets
Gymnasium A/C
40000
(-) Accumulated Depreciation
1900
38100
Gym Equipment A/C
10260
(-) Accumulated Depreciation
4005
6255
Total Non Current Assets
44355
Current Assets
Accounts Receivable
4000
(-) Allowance for Doubtful Debt
120
3880
Bank
55252.5
Total Current Assets
59132.5
Total Assets
103487.5
B. Equity And Liability
Equity
Common Stock
100000
Retained Earnings
1137.5
Total Equity
101137.5
Current Liabilities
Accrued Advertisement
350
Prepaid Training Fees Revenue
2000
Total Current Liabilities
2350
Total Equity And Liability
103487.5
S. NO.
PARTICULARS
DEBIT
CREDIT
a
Bank A/C
100000
To Common Stock A/c
100000
[Issued stock for $100000.]
b
Gymnasium A/C
40000
Gym Equipment A/C
10000
To Bank A/C
50000
[Gymnasium = 80%*50000 = 40000. Gym Equipment = 20%*50000 = 10000.]
c
Gym Equipment A/C
260
To Bank A/C
260
[$260 paid to refurbuish equipments before using it.]
d
Bank A/C
36000
To Traning Fees Revenue A/C
34000
To Prepaid Traning Fees Revenue A/C
2000
[Payments received.]
e
Wages A/C
23000
Utilities A/C
7000
To Bank A/C
30000
[Expenses paid.]
f
Accounts Receivable A/C
4000
To Traning Fees Revenue A/C
4000
[Training fees to be received next year.]
g
Depreciation A/C
1900
To Accumulated Depreciation (Gym) A/C
1900
[Depreciation = (40000-38000)/20 = 1900]
Depreciation A/C
4005
To Accumulated Depreciation (Equip) A/C
4005
[Depreciation = 2*(10260-2250)/4 = 1900]
h
Advertisement A/C
350
To Accrued Advertisement A/C
350
[Advertisement expenses yet to be paid.]
i
Bad Debt Expenses A/C
120
To Allowance for Doubtful Debt A/C
120
[Making provision for bad debt.]
j
Income Tax A/C
487.5
To Bank A/C
487.5
[We assume Income Tax is paid at 30%.]
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