Question

On 1 December 2013, John and Patty Driver formed a corporation called Susquehanna Equipment Rentals. The new corporation was able to begin operations immediately by purchasing the assets and taking over the location of Rent-It, an equipment rental company that was going out of business. The newly formed company uses the following accounts:

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Cash	Share Capital
Accounts Receivable	Retained Earnings
Prepaid Rent	Dividends
Unexpired Insurance	Income Summary
Office Supplies	Rental Fees Earned
Rental Equipment	Salaries Expense
Accumulated Depreciation: Rental Equipment	Maintenance Expense
Notes Payable	Utilities Expense
Accounts Payable	Rent Expense
Interest Payable	Office Supplies Expense
Salaries Payable	Depreciation Expense
Dividends Payable	Interest Expense
Unearned Rental Fees	Income Taxes Expense
Income Taxes Payable

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The corporation performs adjusting entries monthly. Closing entries are performed annually on 31 December. During December, the corporation entered into the following transactions:

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Dec.	1	Issued to John and Patty Driver 30,000 new shares in exchange for a total of $300,000 cash.
Dec.	1	Purchased for $220,800 all of the equipment formerly owned by Rent-It. Paid $131,000 cash and issued a one-year note payable for $89,800. The notes, plus all 12-months of accrued interest, are due 30 November 2014.
Dec.	1	Paid $10,200 to Shapiro Realty as three months’ advance rent on the rental yard and office formerly occupied by Rent-It.
Dec.	4	Purchased office supplies on account from Modern Office Co., $1,900. Payment due in 30 days. (These supplies are expected to last for several months; debit the Office Supplies asset account.)
Dec.	8	Received $8,100 cash as advance payment on equipment rental from McNamer Construction Company. (Credit Unearned Rental Fees.)
Dec.	12	Paid salaries for the first two weeks in December, $5,000.
Dec.	15	Excluding the McNamer advance, equipment rental fees earned during the first 15 days of December amounted to $18,100, of which $12,300 was received in cash.
Dec.	17	Purchased on account from Earth Movers Limited, $900 in parts needed to repair a rental tractor. (Debit an expense account.) Payment is due in 10 days.
Dec.	23	Collected $2,700 of the accounts receivable recorded on15 December.
Dec.	26	Rented a backhoe to Mission Landscaping at a price of $260 per day, to be paid when the backhoe is returned. Mission Landscaping expects to keep the backhoe for about two or three weeks.
Dec.	26	Paid biweekly salaries, $5,000.
Dec.	27	Paid the account payable to Earth Movers Limited, $900.
Dec.	28	Declared a dividend of 10 cents per share, payable on 15 January 2014.
Dec.	29	Susquehanna Equipment Rentals was named, along with Mission Landscaping and Collier Construction, as a co-defendant in a $29,000 lawsuit filed on behalf of Kevin Davenport. Mission Landscaping had left the rented backhoe in a fenced construction site owned by Collier Construction. After working hours on 26 December, Davenport had climbed the fence to play on parked construction equipment. While playing on the backhoe, he fell and broke his arm. The extent of the company’s legal and financial responsibility for this accident, if any, cannot be determined at this time. ( Note: This event does not require a journal entry at this time, but may require disclosure in notes accompanying the statements.)
Dec.	29	Purchased a 12-month public-liability insurance policy for $8,520. This policy protects the company against liability for injuries and property damage caused by its equipment. However, the policy goes into effect on 1 January 2014, and affords no coverage for the injuries sustained by Kevin Davenport on 26 December.
Dec.	31	Received a bill from Universal Utilities for the month of December, $660. Payment is due in 30 days.
Dec.	31	Equipment rental fees earned during the second half of December amounted to $20,100, of which $15,800 was received in cash.

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Data for Adjusting Entries

a.	The advance payment of rent on 1 December covered a period of three months.
b.	The annual interest rate on the note payable to Rent-It is 6 percent.
c.	The rental equipment is being depreciated by the straight-line method over a period of eight years.
d.	Office supplies on hand at 31 December are estimated at $610.
e.	During December, the company earned $3,900 of the rental fees paid in advance by McNamer Construction Co.on 8 December.
f.	As of 31 December, six days’ rent on the backhoe rented to Mission Landscaping on 26 December has been earned.
g.	Salaries earned by employees since the last payroll date (26 December) amounted to $1,300 at month-end.
h.	It is estimated that the company is subject to an income tax rate of 40 percent of profit before income taxes (total revenue minus all expenses other than income taxes). These taxes will be payable in 2014.

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Journalize the December transactions. Do not record adjusting entries at this point. (In cases where no entry is required, please select the option "No journal entry required" for your answer to grade correctly. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.) Prepare the necessary adjusting entries for December. (Do not round intermediate calculations and round your final answers to the nearest dollar amount. Omit the "$" sign in your response.) Prepare closing entries and post to ledger accounts. (Do not round intermediate calculations. Omit the "$" sign in your response.)

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Post the entries into the following ledger accounts. (Record the transactions in the given order. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

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Prepare an income statement for the year ended December 31. (Input all amounts as positive values. Do not round intermediate calculations and round your final answers to the nearest dollar amount. Omit the "$" sign in your response.)

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Prepare a statement of changes in equity for the year ended December 31. (Input all amounts as positive values. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

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Prepare a statement of financial position (in report form) as at December 31. (Input all amounts as positive values. Be sure to list the assets and liabilities in order of their liquidity. Omit the "$" sign in your response.)

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Prepare an after-closing trial balance as of December 31. (The items in the Trial Balance should be grouped as follows: Assets (in order of their liquidity), Liabilities (in order of their liquidity) and Equity. Omit the "$" sign in your response.)

Answer 1

On 1 December 2013, John and Patty Driver formed a corporation called Susquehanna Equipment Rentals. The new corporation was able to begin operations immediately by purchasing the assets and taking over the location of Rent-It, an equipment rental company that was going out of business. The newly formed company uses the following accounts: