On December 1, 2015 John Trap created a new travel agency, Trap Adventures, Inc. providing exclusive adventure trips. The following transactions occurred during December 2015.
(NOTE: There are no beginning balances – this is a new company.)
| Dec | 1 | John Trap invested $60,000 cash in the company for common stock. |
| 2 | Purchase office equipment for $17,500 cash. | |
| 2 | The company rented furnished office space by paying $18,000 cash for the first six months (December 2015 – May 2016) rent. | |
| 3 | The company purchased $1,500 of office supplies on account. | |
| 10 | The company paid $3,600 cash for the premium on a 12-month insurance policy. | |
| 14 | The company paid $10,750 cash for two weeks’ salaries earned by employees. | |
| 24 | The company collected $54,000 cash on commissions from airlines on tickets obtained for customers. | |
| 28 | The company paid $12,125 cash for two weeks’ salaries earned by employees. | |
| 29 | The company paid $350 cash for minor repairs to the company’s computer. | |
| 30 | The company paid $450 cash for this month’s telephone bill. | |
| 30 | Dividends of $3,000 cash were paid. |
Adjustment Data:
- One month’s insurance coverage has expired.
- The company occupied the office space for the month of December.
- At the end of the month, $600 of office supplies are still available.
- This month’s depreciation on the computer equipment is $325.
- Employees earned $525 of unpaid and unrecorded salaries as of month-end.
Final Project Requirements
Using the spreadsheet found here and information above, complete the following:
- Create journal entries to record the transactions that occurred during the month of December.
- Prepare an unadjusted trial balance
- Create adjusting journal entries at the end of the year, December 31 based on the adjustment data.
- Prepare an adjusted trial balance.
- Prepare an income statement, statement of stockholders’ equity, and classified balance sheet.
- Create closing journal entries to close all temporary accounts.
- Prepare post-closing trial balance.
- Answer two of the questions below in 1-2 fully developed paragraphs. A fully developed paragraph should have a major point with 3 to 5 support sentences. One or two sentences is not acceptable or does not discuss the question. Be sure to show what you know!!!
- Trap Adventures, Inc. is looking for an accountant. In your own words, explain to Trap’s hiring team the role of accountant and accounting within business. Provide examples of the expectations of the accountant.
- Discuss the financial position of Trap Adventures, Inc using the following ratios:
- Current ratio
- Return on equityFor each ratio, provide the calculation and an explanation of the meaning. Is this a positive or negative result for the Trap Adventures, Inc.?
- Using Trap Adventures, Inc.’s income statement, evaluate the operations for the month of December. Complete a common-size income statement using sales as the base number. What is the largest percentage? What is the smallest percentage? What recommendations could be made to increase Trap’s net income?
- Currently, Trap Adventures, Inc. does not own any loans or bank notes (long-term liabilities). What would happen if Trap decides to obtain a bank loan for $25,000 to fund daily operations? How would this transaction impact the financial statements – which accounts would be affected? What is the debt to equity ratio? What does the debt to equity ratio represent?
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