Page | 1 Great Adventures, Inc. 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 companys stock is actively traded on the New York Stock Exchange. At the end of the first quarter of the year 2022, the companys CFO is in the process of preparing financial statements for filing with the SEC and reporting to shareholders at the coming stockholders conference late April. The CFO has obtained summarized information on the companys business activities from the controllers office. 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 deposited into the companys bank account on 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. ---------------------------------------------------------------------- 2020 by Charles Y. Tang, Ph.D. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form without the prior written permission from the author.

Page | 2 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 companys infomercial between 11:00 am 12:00 pm each day for three months and paid 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. Companys total sales for the quarter are listed below. All sales were credit sales. Total Net Sales Revenue January $ 148,000 February 168,000 March 199,000 Total $ 515,000 The amount was net of sales return and sales discount.

Page | 3 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. Companys total salary and other operating expenses each month were as follows: Salary & Payroll Other Operating Tax Expenses Expenses January $ 26,410 $ 5,630 February 28,230 6,430 March (First 3 weeks) 21,620 4,460 Total $ 76,260 $ 16,520 Salaries were paid in the form of direct deposits to employees bank accounts biweekly; the employees portion of health insurance premium 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. Employers payroll taxes 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. Companys merchandize purchases were as follows: Total Merchandise Purchase Costs January $ 106,000 February 108,000 March 121,000 Total $ 335,000 The companys purchase agreement 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.

Page | 4 B. 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 remained in the companys warehouse. C. The depreciation for equipment and buildings totaled $6,800 for the quarter. D. The cost for the three-month informercial paid on February 1 requires a proper adjustment. E. 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. F. Interest expense on the new 3-year 12% loan borrowed in January needs to be recognized although not yet paid. G. Companys inventory system shows the total costs of inventory on hand at the 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. Companys income tax rate is 28%. Balance Sheet for Great Adventures at 12/31/2021 Great Adventures, Inc. Balance Sheet (In USD 1,000) December 31, 2021 Assets Liabilities Current assets: Current liabilities: Cash $138,800 Accounts payable $39,630 Accounts Receivable Net $75,000 Interest payable $1,750 Merchandise Inventory $111,836 Unearned Revenues $38,846 Prepayments $2,300 Income tax payable $48,680 Total current assets $327,936 Total current liabilities $128,906 Notes payable (2 year, 9%) $25,000 Long-term assets: Total Long-term Liabilities $25,000 Land $34,290 Stockholders Equity Buildings $85,000 Common stock ($1 Par) $20,000 Equipment $56,650 Additional Paid-in Capital $157,965 Accumulated Depreciation ($25,225) Retained earnings $146,780 Total Long-term asset $150,715 Total stockholders equity $324,745 Total assets $478,651 Liabilities & stockholders equity $478,651

Create a balance sheet and explain