Question

Pikes Peak is a ski resort in upstate New York. The company sells lift tickets, ski lessons, and ski equipment. It operates several restaurants and rents townhouses to vacationing skiers. The following hypothetical December transactions are typical of those that occur at the resort.

1. Borrowed $715,000 from the bank on December 1, signing a note payable, due in six months.
2. Purchased a new snowplow for $40,250 cash on December 31.
3. Purchased ski supplies for $14,500 on account.
4. Incurred $24,100 in routine maintenance expenses for the chairlifts; paid cash.
5. Received $72,750 for season passes (beginning in the new year).
6. Daily lift passes were sold this month for a total of $81,400 cash.
7. Received a $685 deposit on a townhouse to be rented for five days in January.
8. Paid half the charges incurred on account in (c).
9. Incurred and paid $18,100 in wages to employees for the month of December.

Required:

1. Prepare accrual basis journal entries for each transaction.
2. Calculate the company’s preliminary net income.

Answer 1

SOLUTION

1. Journal entries-

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
a.	Cash	715,000
	Notes payable		715,000
b	Equipment	40,250
	Cash		40,250
c.	Supplies	14,500
	Accounts payable		14,500
d.	Repairs and maintenance	24,100
	Cash		24,100
e.	Cash	72,750
	Unearned revenue		72,750
f.	Cash	81,400
	Service revenue		81,400
g.	Cash	685
	Unearned revenue		685
h.	Accounts payable	7,250
	Cash (14,500/2)		7,250
i.	Salaries and Wages expenses	18,100
	Cash		18,100

2. Expenses = Routine maintenance expenses + Wages to employees

= 24,100 + 18,100 = 42,200

Revenue = Daily Lift Passes = 81,400

Net Income = $81,400 - $42,200 = 39,200