Great Adventures Company, Inc., specializes in supplies, gears and equipment for sports and outdoor adventures. The products it sells range from tennis balls, gloves to skiing gears, and off-road motorcycles. The company purchases its products from manufactures worldwide and sells them to a large network of independent retail shops and dealers in North America. Business is booming as the population becomes more health-conscious and more people participate in sports and outdoor adventures. In addition to its main business, the company is planning to diversify its business into running ski resorts and out-door parks.

The cma ck i aciel aded he Ne Y k Sck Echage. At the end of the first quarter of the year 2022, the cma CFO i i he ce f preparing financial statements for filing with the SEC and reporting to shareholders at the comig ckhlde cfeece late April. The CFO has obtained summarized ifmai he cma bie aciiie fm he clle ffice. The CFO asks for your assistance to analyze the information and come up with a draft of quarterly financial statements with a brief analysis.

Summary of Business Activities in the First Quarter 2022

All dollar amounts are in thousands (000) except the per-share values.

1. To finance business expansion, the company signed an agreement with a national bank in December 2021 to obtain a $30,000 three-year loan. The amount was deied i he cma bak acc n January 1, 2022. The interest on the loan is due semiannually and carries a 12% annual interest rate.

2. On January 20, Great Adventures reached an agreement to purchase a large plot of land in a mountainous area in Vermont as the site for the future ski resort. In this share-based transaction, the company agreed to issue 500,000 shares of its common stock as a way of payment. The common stock has a $1 par value per share. The transaction was closed on March 1 when stocks were trading at $23 per share.

3. On February 1, the company issued five million shares of its common stock through an investment banker on Wall Street and received $95,760 in cash proceeds.

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1.

4. In January, the company received $45,000 in cash from customers who bought merchandizes last year. The remaining $30,000 was received in February.

5. On January 28, the company paid its suppliers for a total of $29,630 in cash through its bank for the purchases made last year.

6. On February 1, the company signed an agreement with a national TV station to run the cma ifmecial beee 11:00 am 12:00 pm each day for three months at a total cost of $1,660.

7. On February 15, the company closed a deal to purchase a new warehouse building in a suburban area outside Boston for $8,800 in cash. The warehouse was placed in use immediately.

8. On February 28, the company closed a deal to sell an office building for $4,580 in cash at a significant gain of $2,115. The building was temporarily rented to another company before it was sold. The building was purchase in 1980 for a total cost of $5,675.

9. On February 28, the company paid its suppliers for the remaining unpaid purchases made last year.

10. On March 1, the company paid the employers portion of health insurance premium to the insurance provider. The total amount paid was $12,435 which would cover a period of 12 months. The remainder of the premium was paid by the employees through salaries withholding, according to the employment contract.

11. On March 1, the company purchased 300,000 shares of its own common stock at $24 per share. These shares were needed to issue to top executives for their employee stock option plan.

12. On March 30, the company declared and paid a quarterly cash dividend of $0.20 for shares outstanding on March 28.

13. Cma al ale for the quarter are listed below. All sales were credit sales. Total Net Sales

January February March Total

Revenue $ 148,000 168,000 199,000 $ 515,000

The amount was net of sales return and sales discount.

2.

14. The collection for sales was as follows: January sales were received in full by the end of March. The total amount received for February and March sales was $138,000 and $106,000, respectively.

15. Cma al ala and other operating expenses each month were as follows:

January February March (First 3 weeks) Total $

Other Operating Expenses

26,410 28,230 6,430 21,620 4,460 76,260 $ 16,520

Salary & Payroll Tax Expenses

$

$ 5,630

Salaries were paid in the form of diec dei emlee bak accs biweekly; the emlee i f healh iace emim was withheld from salaries and paid to the insurance provider at the same time when salaries were paid; the estimated personal income taxes were withheld and paid to the government agencies before the end of each month. Emle all ae which included the unemployment tax and social security tax were remitted to the government agencies immediately as they were recorded. Other operating expenses which included utility, property taxes, freight-out, and other miscellaneous expenses were all paid in cash via online banking.

16. Cma mechadie chaes were as follows: Total Merchandise

January February March Total

Purchase Costs $ 106,000 108,000 121,000 $ 335,000

The company chae ageeme specifies that the suppliers ship merchandizes and send invoices, and the company inspects merchandizes after receiving them and pay the invoices after inspection. The purchase amount listed included purchase price, tax, tariff, shipping, and insurance, net of purchase returns and discounts.

17. Payment for purchases were as follows: January purchases were fully paid by the end of March. The amount paid for February and March purchases was $99,000 and $87,000, respectively. The remaining unpaid purchases would be paid in the future months in April and May.

18. Company paid in cash for the interest on the 2-year commercial note for the current quarter as well as the amount owed from last year. The note is not due until June 30, 2023.

19. The CFO also identified the following areas that need to be adjusted:

    A. Employee salary for the 4th week in March totaled $6,500 and will be paid biweekly on April 5th through direct deposit.

3.

2. Goods ordered by customers in the past year but not delivered were all delivered on time in January. However, the delivery of goods to some customers in the northeast region of the U.S. for sales made in March was delayed because of an unexpected snowstorm. As a result, sales totaled $57,000 were not delivered and the merchandize emaied i he cma aehe.

3. The depreciation for equipment and buildings totaled $6,800 for the quarter.

4. The cost for the three-month informercial paid on February 1 requires a proper adjustment.

5. Health insurance premium for January and February, totaled $2,300, was prepaid last year. The health insurance premium paid on March 1 covers a period of 12 months. Proper adjustments are required.

6. Interest expense on the new 3-year 12% loan borrowed in January needs to be recognized although not yet paid.

7. Cma ie em h he al c f ie had a he end of the quarter, based on LIFO, totaled $145,000. The number has been confirmed by a companywide inventory count completed at the end of March.

H. Cma icme a ae i 28%.

Balance Sheet for Great Adventures at 12/31/2021 Great Adventures, Inc. Balance Sheet (In USD 1,000) December 31, 2021

Assets

Current assets: Cash Accounts Receivable Net Merchandise Inventory Prepayments

Total current assets

Long-term assets: Land Buildings Equipment Accumulated Depreciation

Total Long-term asset Total assets

$138,800 $75,000 $111,836 $2,300 $327,936

$34,290 $85,000 $56,650

($25,225) $150,715 $478,651

Liabilities Current liabilities:

Accounts payable Interest payable Unearned Revenues Income tax payable

Total current liabilities Notes payable (2 year, 9%)

Total Long-term Liabilities Sockholde Eqi Common stock ($1 Par) Additional Paid-in Capital Retained earnings

Toal ockholde eqi Liabiliie ockholde eqi

$39,630 $1,750 $38,846 $48,680 $128,906 $25,000 $25,000

$20,000 $157,965 $146,780 $324,745 $478,651

4.

Required:

With the CFO hel, deeled the following work plan for the project:

1. Set up T-accounts with proper account titles and beginning balances.

2. Analyze each of the summary transitions 1 18, determine the proper journal

   entries and record the journal entries in the general journal.

3. Post journal entries to T-accounts.

4. Prepare an unadjusted trial balance. Correct mistakes before continuing to the

   next step if your accounts are out of balance.

5. Analyze adjustments in item 19 and determine proper adjusting entries. Record

   the adjusting entries in the general journal.

6. Post adjusting entries to T-accounts and prepare an adjusted trial balance. Correct

   mistakes before continuing to the next step if your accounts are out of balance.

7. Prepare classified Income Statement and then classified Balance Sheet. Prepare

   the Saeme f Sckhlde Ei. Pa aei e iles, dates, and

   formats.

8. Prepare Statement of Cash Flows using direct and indirect methods. Significant

   non-cash transactions must be disclosed in the footnote.

9. Prepare and post the closing entries to T-accounts.

10. Compute EPS, ROA, ROE, Average Collection Period, Inventory Turnover, PE

    ratio, and Free-Cash Flow. Give comments on these ratios.

11. Submit a report with your name and UID. Please include the following in your

    reports:

    1. Balace Shee, Icme Saeme, Saeme f Oe Ei, ad

       Statement of Cash Flows.

    2. Financial ratios you computed in requirement 10 with your analysis.

    3. General Journal with all journal entries including the adjusting entries.

    4. Adjusted and unadjusted trial balances.

Hints:

1. Do not keep decimals, round all number to thousand.

2. Record salary, payroll taxes, insurance, infomercial, and other expense as

   Operating Expenses. Keep Depreciation Expenses and Interest Expenses in

   separate accounts. This helps reducing the number of T-accounts.

3. Assume the tax rate is also 28% for the gains on sale of long-term assets.

5.

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1

Date

Great Adventures, Inc. General Journal March 31, 2022

Description

Description - Example

Cash Note Payable

Debit

30,000

30,000

Credit

Great Adventures, Inc.

Unadjusted / Adjusted Trial Balance March 31, 2022

Accounts

Debit	Credit

Total

Cash

Accounts Receivable

Inventories

Prepayments

Land

Buildings

Equipment

Accumulated Depreciation

Accounts Payable

Interests Payable

Unearned Revenue

Income Tax Payable

Notes Payable

Common Stock

Additional Paid-in Capital

Retained Earnings