Grid Iron Prep Inc. (GIPI) is a service business incorporated in January of the
ID: 2328941 • Letter: G
Question
Grid Iron Prep Inc. (GIPI) is a service business incorporated in January of the current year to provide personal training for athletes aspiring to play college football. The following transactions occurred during the month ended January 31.
a) GIPI issued stock in exchange for $290,000 cash on 1/01.
b) GIPI purchased a gymnasium building and gym equipment on 1/02 for $53,000, 80% of which related to the gymnasium and 20% to the equipment.
c)GIPI paid $600 cash on 1/03 to have the gym equipment refurbished before it could be used.
d) GIPI provided $9,000 in training on 1/04 and expected collection in February.
e) GIPI collected $39,000 cash in training fees on 1/10, of which $33,000 related to January and $6,000 related to February.
f) GIPI paid $24,000 of wages and $7,000 in utilities on 1/30.
g) GIPI will depreciate the gymnasium building using the straight-line method over 10 years with a residual value of $3,000. Gym equipment will be depreciated using the double-declining-balance method, with an estimated residual value of $2,500 at the end of its four-year useful life. Record depreciation on 1/31 equal to one-twelfth the yearly amount.
h) GIPI received a bill on 1/31 for $290 for advertising done on 1/31. The bill has not been paid or recorded.
i) GIPI uses the aging method for estimating doubtful accounts and, on 1/31, will record an estimated 3 percent of its under-30-day-old accounts as not collectible.j
j) GIPI’s income tax rate is 30%. Assume depreciation for tax is the same amount as depreciation for financial reporting purposes.
I am completeing the general journal now, and I particulary need help on G, I, and J.
Explanation / Answer
Event Account titles and Explanation Debit Credit g. Depreciation expense (Note:1) 795 Accumulated depreciation-Building 328 Accumulated depreciation-Equipment 467 (Depreciation recorded) i. Baddebt expense (Note:2) 270 Allowance for doubtful accounts 270 (Alloance for accounts receivables made) j. Income tax expense 2893.5 Income tax payable 2893.5 (Income tax due) Note:1- Depreciation to be recorded Building: Cost of building (53000*80%) 42400 Depreciation under SLM=(Cost-Salvage value)/Useful life=(42400-3000)/10=$ 3940 Depreciation for a month=3940/12=328.33=$ 328 Equipment: Cost: Purchase price (53000*20%) 10600 Refurbishment cost 600 Total cost 11200 Rate of depreciation under double decling balance method=2*Straight line rate Straight line rate=100%/Useful life=100%/4=25% Rate of depreciation under double decling balance method=2*25%=50% Depreciation=cost*depreciation rate=11200*50%=$ 5600 Depreciation for a month=5600/12=466.67=$ 467 Note:2- Allowance for doubtful accounts Amount from customers to be received in February=$ 9000 Estmated percent uncollectible=3% Allownce to be made=9000*3%=$ 270 Note:3 Computation of income tax Prepare an income statement $ Revenue: 04-Jan 9000 10-Jan Related to jan 33000 42000 Less: Expenses Wages 24000 Utilities 7000 Depreciation expese 795 Advertising expense 290 Baddebt expense 270 32355 Income before taxes 9645 Income tax @ 30% (9645*30%) 2893.5
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