In the spring of 2017, John Conrad retired as the tennis pro of the Cataraqui Tennis Club, an exclusive indoor/outdoor club in Kingston, Ontario. A special committee of the board of directors was formed to find a replacement for the combined job of tennis pro and owner of the pro shop and bar lounge. Nine persons had applied for the position, but the boards first choice was Mike The Racquet Brown. His qualifications and experience were excellent, and the committee believed his reputation as the two-time Canadian amateur tennis champion would enhance the status and prestige of the club.

After learning of the job offer, Brown accepted immediately. He was excited about the opportunity to invest his hard-earned savings into a business he knew and loved. On July 1, 2017, Brown incorporated the pro shop and bar lounge area and deposited $100,000 into the corporations bank account in exchange for common shares. Also on that day, Brown purchased an inventory of racquets, balls, clothes, shoes, and accessories (i.e. the pro shop inventory) valued at $16,340, liquor inventory valued at $13,660, $11,000 worth of fixtures and $4,000 of glassware. The business was to receive all sales from the pro shop and bar lounge and would pay part-time help to sell goods and serve drinks. The business uses a perpetual inventory system.

Brown was an immediate success. He was readily accepted by all the members and was regarded as an asset to the club. Much of his time was spent instructing individuals while the better players anxiously awaited an opportunity to strike up a match with Brown. Given his busy schedule, Brown did not keep a close watch on his accounting records. He did, however, attempt to keep an accurate cash record and decided not to worry about the rest until fiscal year-end.

On June 30, 2018, Brown began to examine his records and notes. His cash records revealed the following:

Receipts
Pro shop sales	$53,700
Match fees	22,650
Instruction (lesson) fees	45,600
Liquor sales	64,550
Other revenue	3,050
Total	$189,550

Page 2 of 3 ACCT203 Case Study

Payments
Rent of pro shop and lounge1	$19,500
New lounge fixtures (purchased June 1, 2018)	8,400
Pro shop goods for resale2	26,650
Liquor for resale3	14,400
Shop assistant wages	24,000
Wait staff wages	27,500
Brown's salary	52,000
Total	$172,450

Brown was sure his bank account was correct, but he did not know what else he should record. He went to Gerald Davis, a local chartered account and club member, to ask for help.

Davis began by examining the chequebook, invoices, and other records Brown had accumulated in a shoe box. He found two outstanding bills: one for additional lounge fixtures of $4,200 (purchased on June 1, 2018) and a $2,000 invoice for the purchase of pro shop goods for resale (purchased on June 18, 2018), due in 30 days. (These items are not included in the above payments list)

On June 30, 2018, Brown had 11 racquets in the shop, waiting to be restrung. Although he had done no work on the racquets and had not collected any money from customers, his normal rate for restringing was $175 per racquet, including materials.

The members purchased liquor chit books or vouchers in the pro shop for use in the bar lounge. Although the chit book cash receipts of $64,550 were noted, $650 of the chits had not been used as of June 30. These amounts could be carried over to the following year.

The fixtures purchased on July 1, 2017, had an estimated useful life of five years, whereas, the new fixtures would last an estimated eight years. Due to frequent breakage, glassware had a much shorter useful life of two years. These assets would be depreciated using the straight-line method with no residual value.

During the year, Brown instructed 606 sets of lessons for $100 per set. He had also played 155 matches with members, charging $150 per match. Brown had not yet received payment for four of those matches. Davis felt that the social pressures among the clubs memberships would ensure full payment for all debts owed.

On June 30, 2018, Davis helped Brown take a physical inventory count and found that there was $17,880 worth of pro shop inventory and $11,920 worth of liquor inventory.

Income taxes are calculated at a rate of 30 per cent of net income before tax.

1 Brown was required to pay rent to the club in the amount of $1,500 per month for use of the space. 2 Does not include payment made on July 1, 2017, for initial pro shop inventory 3 Does not include payment made on July 1, 2017, for initial liquor inventory

REQUIRED:

1. Journalize all transactions and year-end adjusting entries for the year ending June 30, 2018.

2. Post the entries from requirement (1) to the applicable General Ledger accounts.