Grid Iron Prep Inc. (GIPI) is a service business incorporated in January of the
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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.
Prepare: journal entries, income statement, statement of retained earnings, and a balance sheet
GIPI purchased a gymnasium building and gym equipment on 1/02 for $50,000, 80% of which related to the gymnasium and 20% to the equipment.
GIPI collected $36,000 cash in training fees on 1/10, of which $34,000 was earned in January and $2,000 would be earned in February.
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-balance method, with an estimated residual value of $2,250 at the end of its four-year useful life. Record depreciation on 1/31 equal to one-twelfth the yearly amount.
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.
GIPI’s income tax rate is 30%. Assume depreciation for tax is the same amount as depreciation for financial reporting purposes.
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.
Prepare: journal entries, income statement, statement of retained earnings, and a balance sheet
Explanation / Answer
In $
Journal Entry
Debit
Cash a/cDr
To Share Capital
Gym Building a/c Dr
Gym Equipment a/c Dr
To Cash a/c
Repairs & Maintenance a/c Dr
To Cash a/c
Accounts receivable a/c Dr
To Training Fees a/c
Cash a/c Dr
To Training Fees a/c
To Advancereceived from customers
Wages a/cDr
Utilies a/c Dr
To Cash
Depreciation a/cDr (Refer Note a)
To Gym Building a/c
To Gym equipment a/c
Advertising Expense a/c Dr
To Accounts Payable a/c
Provision for doubtful debts a/c Dr
To Accounts Receivable(refer note b)
= (40,000-2000)/20
Gym Equipment depreciation
Depreciation under double declining method = 2 x straight-line depreciation percent x book value at beginning of period.
Straight line depreciation=(10000-2250)/4
= 1937.5/(10000-2250)*100
Depreciation= 10,000*25%*2*1/12
= S416.67
Particulars
Training Fee(34000+4000)
Repairs & maintenance
Provision for bad & Doubtful debts
Net profit before tax
Income Tax @ 30%
Net income
Retained earnings opening balance
Add: Net Income
Less: Dividends
Retained EarningsClosing Balance
Share Capital
Gym Building
Retained earnings
Advance received
Gym Equpment
Accounts payable
Less: Acc. depreciaiton
Provision for Income tax
Accounts receivable(4000-120)
Journal Entry
Debit
Cash a/cDr
To Share Capital
Gym Building a/c Dr
Gym Equipment a/c Dr
To Cash a/c
Repairs & Maintenance a/c Dr
To Cash a/c
Accounts receivable a/c Dr
To Training Fees a/c
Cash a/c Dr
To Training Fees a/c
To Advancereceived from customers
Wages a/cDr
Utilies a/c Dr
To Cash
Depreciation a/cDr (Refer Note a)
To Gym Building a/c
To Gym equipment a/c
Advertising Expense a/c Dr
To Accounts Payable a/c
Provision for doubtful debts a/c Dr
To Accounts Receivable(refer note b)
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