Question

BigWaveDave Surf School provides surfing lessons to individuals in Tofino, BC and also offers “Certified Surfing Instructor Training” to groups and individuals in other off-site locations. The business follows the practice of initially recording Prepaid Expenses and Unearned Revenues in balance sheet accounts (eg. prepaid asset or unearned liability). Following is the unadjusted trial balance. BigWaveDave only does accounting once per year at year end.

BigWaveDave Surf School (a proprietorship)
Unadjusted Trial Balance
December 31, 2018
ACCOUNT	DEBIT	CREDIT
Cash	$  3,100
Accounts receivable	4,800
Surfing supplies	2,900
Prepaid advertising	1,950
Prepaid insurance	5,600
Surf equipment (Sea-doos)	21,300
Accumulated amortization - Surf equipment		$ 13,160
Vehicles (GM Pick-up truck)	49,000
Accumulated amortization – Truck		27,450
Accounts payable		6,775
Salaries payable		1,500
Unearned fees		5,200
Dave Slater, capital		20,353
Fee revenue		36,050
Advertising expense	5,985
Amortization expense – Surf equipment	0
Amortization expense – Truck	0
Insurance expense	200
Surfing supplies expense	2,000
Salary expense	13,653
Total	$110,488	$110,488

Additional information related to fiscal year 2018 but not made available until January 5, 2019, a few days after the above unadjusted trial balance was prepared, is as follows:

1. Analysis of the company’s policies shows $5,400 of insurance coverage expired.

2. A physical count shows surfing supplies of $777 remaining at the end of the year.

3. The estimated annual amortization on the Sea-doos (surf equipment) is $4,500 and on the pick-up truck (vehicle) is $7,000.

Answer 1

Transaction	Account Titles and Explanation	Debit	Credit
a.	Insurance expense	$5,400
	Prepaid insurance		$5,400
b.	Surfing supplies expense	$2,123
	Surfing supplies		$2,123
	($2900 - $777)
c.	Amortization expense – Surf equipment	$4,500
	Accumulated amortization - Surf equipment		$4,500
	Amortization expense – Truck	$7,000
	Accumulated amortization – Truck		$7,000