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:

  

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

Answer 1

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