1) Tony and Suzie see the need for a rugged all-terrain vehicle to transport participants and supplies. They decide to purchase a used Suburban. The cost of the Suburban is $8,800. The vehicle is purchased in late June and will be put into use on July 1, 2019. Annual insurance from GEICO runs $1,400 per year. The paint is starting to fade, so they spend an extra $2,200 to repaint the vehicle, placing the Great Adventures logo on the front hood, back, and both sides. An additional $1,200 is spent on a deluxe roof rack and a trailer hitch. The painting, roof rack, and hitch are all expected to increase the future benefits of the vehicle for Great Adventures. They expect to use the Suburban for five years and then sell the vehicle for $3,700.
-Determine the amount that should be recorded for the new vehicle.
-Prepare a depreciation schedule using the straight-line method.
-Record the sale of the vehicle two years later on July 1, 2021, for $7,600.
2) Great Adventures is a defendant in litigation involving a biking accident during one of its adventure races. The front tire on one of the bikes came off during the race, resulting in serious injury to the rider. However, Great Adventures can document that each bike was carefully inspected prior to the race. It may have been that the rider loosened the wheel during the race and then forgot to tighten the quick-release mechanism.
For each of the following scenarios, record the necessary entry.
Required:
1. The likelihood of a payment occurring is probable, and the estimated amount is $110,000.
2. The likelihood of a payment occurring is probable, and the amount is estimated to be in the range of $90,000 to $140,000.
3. The likelihood of a payment occurring is reasonably possible, and the estimated amount is $110,000.
4. The likelihood of a payment occurring is remote, while the estimated potential amount is $110,000.
3) Tony’s favorite memories of his childhood were the times he spent with his dad at camp. Tony was daydreaming of those days a bit as he and Suzie jogged along a nature trail and came across a wonderful piece of property for sale. He turned to Suzie and said, “I’ve always wanted to start a camp where families could get away and spend some quality time together. If we just had the money, I know this would be the perfect place.” They called several banks and on January 1, 2020, Great Adventures obtained a $570,000, 6%, 9-year installment loan from Summit Bank. Payments of $6,843 are required at the end of each month over the life of the 9-year loan. Each monthly payment of $6,843 includes both interest expense and principal payments (i.e., reduction of the loan amount).
Late that night Tony exclaimed, “$570,000 for our new camp, this has to be the best news ever.” Suzie snuggled close and said, “There’s something else I need to tell you, Tony, I’m expecting!” They decided right then, if it was a boy, they would name him Venture.
Complete the first three rows of an amortization table.
cash paid, interest expense, decrease in carrying value, carrying value
01/01/2020
01/31/2020
02/28/2020
Record the note payable on January 1, 2020, and the first two payments on January 31, 2020, and February 28, 2020.
4) Tony and Suzie purchased land costing $500,000 for a new camp in January 2020. Now they need money to build the cabins, dining facility, a ropes course, and an outdoor swimming pool. Tony and Suzie first checked with Summit Bank to see if they could borrow another million dollars, but unfortunately the bank turned them down as too risky. Undeterred, they promoted their idea to close friends they had made through the outdoor clinics and TEAM events. They decided to go ahead and sell shares of stock in the company to raise the additional funds for the camp. Great Adventures has two classes of stock authorized: 8%, $10 par preferred, and $1 par value common.
When the company began on July 1, 2018, Tony and Suzie each purchased 10,000 shares of $1 par value common stock at $1 per share. The following transactions affect stockholders’ equity during 2020, its third year of operations:
July 2 Issue an additional 120,000 shares of common stock for $11 per share.
September 10 Repurchase 12,000 shares of its own common stock (i.e., treasury stock) for $14 per share.
November 15 Reissue 6,000 shares of treasury stock at $15 per share.
December 1 Declare a cash dividend on its common stock of $134,000 ($1 per share) to all stockholders of record on December 15.
December 31 Pay the cash dividend declared on December 1.
-Record each of these transactions.
-Great Adventures has net income of $142,000 in 2020. Retained earnings at the beginning of 2020 was $132,000. Prepare the stockholders’ equity section of the balance sheet for Great Adventures as of December 31, 2020.