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.
1. GIPI issued stock in exchange for $ 100,000 cash on 1/01.
2. 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.
3. GIPI paid $ 260 cash on 1/03 to have the gym equipment refurbished before it could be used.
4. GIPI provided $ 4,000 in training on 1/04 and expected collection in February.
5. 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.
6. GIPI paid $ 23,000 of wages and $ 7,000 in utilities on 1/30.
7. 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.
8. GIPI received a bill on 1/31 for $ 350 for advertising done on 1/31. The bill has not been paid or recorded.
9. 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.
10. GIPI’s income tax rate is 30%. Assume depreciation for tax is the same amount as depreciation for financial reporting purposes.
Required:
1. Prepare journal entries to record the transactions and adjustments listed in (1)–(10).
2. If you are completing this problem manually, post the entries from requirement 1 to T- accounts and then prepare an adjusted trial balance at December 31. Show a zero balance for Retained Earnings in the adjusted trial balance. (If you are completing this problem in Connect, this requirement will be completed automatically for you using your responses to requirement 1.)
3. Prepare GIPI’s annual income statement, statement of retained earnings, and classified balance sheet.