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On 1 December 2013, John and Patty Driver formed a corporation called Susquehanna Equipment Rentals. The...

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:

  

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


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


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 $139,000 cash and issued a one-year note payable for $81,800. The notes, plus all 12-months of accrued interest, are due 30 November 2013.

Dec. 1

Paid $10,500 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., $1,400. Payment due in 30 days. (These supplies are expected to last for several months; debit the Office Supplies asset account.)

Dec. 8

Received $8,900 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 $18,000, of which $12,200 was received in cash.

Dec. 17

Purchased on account from Earth Movers Limited, $600 in parts needed to repair a rental tractor. (Debit an expense account.) Payment is due in 10 days.

Dec. 23 Collected $2,600 of the accounts receivable recorded on15 December.
Dec. 26

Rented a backhoe to Mission Landscaping at a price of $330 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, $600.
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 $26,000 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 $8,400. 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, $690. Payment is due in 30 days.

Dec. 31

Equipment rental fees earned during the second half of December amounted to $20,200, of which $16,300 was received in cash.


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 $670.
e.

During December, the company earned $4,600 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 $1,800 at month-end.

h.

It is estimated that the company is subject to an income tax rate of 30 percent of profit before income taxes (total revenue minus all expenses other than income taxes). These taxes will be payable in 2014.

Prepare closing entries and post to ledger accounts. (Do not round intermediate calculations. Omit the "$" sign in your response.)

Date General Journal Debit Credit
Dec. 31     (Click to select)Rent expenseIncome summarySalaries expenseUtilities expenseRent fees earnedOffice supplies expenseMaintenance expenseAccounts payableDividendsIncome taxes expense     
       (Click to select)Utilities expenseAccounts payableDividendsRent fees earnedMaintenance expenseSalaries expenseOffice supplies expenseIncome taxes expenseRent expenseIncome summary    
31     (Click to select)Depreciation expenseInterest expenseOffice supplies expenseRent expenseAccounts payableUtilities expenseMaintenance expenseIncome taxes expenseSalaries expenseIncome summary     
       (Click to select)Salaries expenseDepreciation expenseUtilities expenseIncome taxes expenseMaintenance expenseOffice supplies expenseRent expenseInterest expenseDividendsIncome summary     
       (Click to select)Salaries expenseOffice supplies expenseDepreciation expenseDividendsRent expenseIncome summaryMaintenance expenseIncome taxes expenseInterest expenseUtilities expense     
       (Click to select)Rent expenseUtilities expenseIncome taxes expenseDepreciation expenseSalaries expenseInterest expenseDividendsMaintenance expenseIncome summaryOffice supplies expense     
       (Click to select)Maintenance expenseDividendsSalaries expenseInterest expenseDepreciation expenseUtilities expenseIncome summaryOffice supplies expenseIncome taxes expenseRent expense     
       (Click to select)Rent expenseMaintenance expenseOffice supplies expenseInterest expenseSalaries expenseIncome summaryUtilities expenseDividendsDepreciation expenseIncome taxes expense     
       (Click to select)Income summaryMaintenance expenseInterest expenseIncome taxes expenseUtilities expenseSalaries expenseDepreciation expenseOffice supplies expenseRent expenseDividends     
       (Click to select)Utilities expenseDepreciation expenseOffice supplies expenseRent expenseInterest expenseDividendsMaintenance expenseIncome taxes expenseIncome summarySalaries expense     
       (Click to select)Income taxes expenseSalaries expenseDepreciation expenseInterest expenseDividendsOffice supplies expenseIncome summaryRent expenseUtilities expenseMaintenance expense     
31     (Click to select)Salaries payableNotes payableDepreciation expenseRent expenseIncome summaryInterest expenseIncome taxes expenseRetained earningsAccounts receivableAccounts payable     
       (Click to select)Salaries payableRetained earningsInterest expenseRent expenseAccounts receivableIncome taxes expenseIncome summaryNotes payableDepreciation expenseAccounts payable     
31     (Click to select)Interest expenseUtilities expenseMaintenance expenseDepreciation expenseRetained earningsSalaries expenseDividendsOffice supplies expenseRent expenseIncome taxes expense     
       (Click to select)Interest expenseRetained earningsSalaries expenseMaintenance expenseIncome taxes expenseDepreciation expenseUtilities expenseOffice supplies expenseDividendsRent expense     

Solutions

Expert Solution

Date Account Title Debit Credit
Dec. 1 Cash 300000
Share Capital 300000
Dec. 1 Rental Equipment 220800
Cash 139000
Notes Payable 81800
Dec. 1 Prepaid Rent 10500
Cash 10500
Dec. 4 Office Supplies 1400
Accounts Payable 1400
Dec. 8 Cash 8900
Unearned Rental Fees 8900
Dec. 12 Salaries Expense 5000
Cash 5000
Dec. 15 Cash 12200
Accounts Receivable 5800
Rental Fees Earned 18000
Dec. 17 Maintenance Expense 600
Accounts Payable 600
Dec. 23 Cash 2600
Accounts Receivable 2600
Dec. 26 NO JOURNAL ENTRY
Dec. 26 Salaries Expense 5000
Cash 5000
Dec. 27 Accounts Payable 600
Cash 600
Dec. 28 Dividends 3000
Dividends Payable 3000
Dec. 29 NO JOURNAL ENTRY
Dec. 29 Unexpired Insurance 8400
Cash 8400
Dec. 31 Utilities Expense 690
Cash 690
Dec. 31 Cash 16300
Accounts Receivable 3900
Rental Fees Earned 20200
Adjusting Entries
a. Rent Expense 3500
Prepaid Rent 3500
(10500/3)
b. Interest expense 409
Interest payable 409
(81800*6%/12)
c. Depreciation Expense 2300
Accumulated Depreciation: Rental Equipment 2300
(220800/8/12)
d. Office Supplies Expense 730
Office Supplies 730
(1400-670)
e. Unearned Rental Fees 4600
Rental Fees Earned 4600
f. Accounts Receivable 1980
Rental Fees Earned 1980
(330*6)
g. Salaries Expense 1800
Salaries Payable 1800
h. Income Taxes Expense 7425
Income Taxes Payable 7425
628434 628434

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