Grid Iron Prep Inc. (GIPI) is a service business incorporated in January of the current year toprovide personal training for athletes aspiring to play college football. The following transactionsoccurred 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% ofwhich 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 Januaryand $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 yearswith a residual value of $2,000. Gym equipment will be depreciated using the doubledeclining-balance method, with an estimated residual value of $2,250 at the end of its fouryear 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 paidor recorded.9. GIPI uses the aging method for estimating doubtful accounts and, on 1/31, will record anestimated 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 toT-accounts and then prepare an adjusted trial balance at December 31. Show a zero balancefor Retained Earnings in the adjusted trial balance. (If you are completing this problem inConnect, this requirement will be completed automatically for you using your responses torequirement 1.)3. Prepare GIPI’s annual income statement, statement of retained earnings, and classified balance sheet.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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
with a residual value of $2,000. Gym equipment will be depreciated using the doubledeclining-balance method, with an estimated residual value of $2,250 at the end of its fouryear 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
2. If you are completing this problem manually,
T-accounts and then prepare an adjusted
for
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
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