Question

Fred’s Fun-Time Arcade Rentals-Accounting Cycle On December 1, 2018, Fred and Patsy Forrest formed a corporation called Fred’s Fun-Time Arcade Rentals. The newly formed corporation rents retro video arcade games, pinball machines, dunk tanks, photo booths, moon bounces and more for businesses, community centers, schools, group events, and parties. Fred’s Fun-Time Arcade Rentals immediately began operations by taking over the location of Arcade Alley Games, a vintage classic arcade game rental company that closed. Fred’s Fun-Time Arcade Rentals, uses the following accounts: Cash                                                    Income Taxes Payable Accounts Receivable                          Capital Stock Prepaid Rent                                                   Retained Earnings Unexpired Insurance                                      Dividends Office Supplies                                               Income Summary Arcade Game Machines                                 Rental Fees Revenue Accumulated Depreciation:                       Salaries Expense Arcade Game Machines                          Maintenance Expense Notes Payable                                  Utilities Expense Accounts Payable                                           Rent Expense Interest Payable                                           Office Supplies Expense Salaries Payable                                           Depreciation Expense: Arcade Game Machines Dividends Payable                                          Interest Expense Unearned Rental Fees                                Income Taxes Expense                                              The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31. During December, the corporation entered into the following transactions: Dec. 1   Issued to Fred and Patsy Forrest 30,000 shares of capital stock in exchange for a total of $300,000 cash. Dec. 1   Purchased for $240,000 all of the arcade game machines formerly owned by Arcade Alley Games. Paid $90,000 cash and issued a one-year note payable for $150,000. The note, plus all 12-months of accrued interest, are due November 30, 2019. Dec. 1   Paid $15,000 to Sunshine Realty as three months’ advance rent for warehouse used to store the arcade game machines and office formerly occupied by Arcade Alley Games. Dec. 4 Purchased office supplies on account from Office Depot, $1,300. Payment is due in 30 days. (These supplies are expected to last for several months; debit the Office Supplies asset account.) Dec. 8 Received $6,000 cash as advance payment on pinball arcade game rentals from Party Planners, Inc. (Credit Unearned Rental Fees.) Dec. 12 Paid salaries for the first two weeks in December, $5,400. Dec. 15 Excluding the advance from Party Planners, Inc., arcade game rental fees earned during the first 15 days of December amounted to $22,000, of which $14,000 was received in cash. Dec. 17 Purchased on account from Arcade Restoration, Inc., $400 in parts needed to repair a dunk tank machine. (Debit an expense account.) Payment is due in 10 days. Dec. 23 Collected $2,100 of the accounts receivable recorded on December 15. Dec. 26 Rented a video poker machine to O’Malley’s Pub at a price of $150 per day, to be paid when the video poker machine is returned. O’Malley’s Pub expects to keep the video poker machine for a month. Dec. 26 Paid biweekly salaries, $5,400. Dec. 27 Paid the account payable to Arcade Restoration, Inc., $400. Dec. 28 Declared a dividend of 10 cents per share, payable on January 15, 2019. Dec. 29 Purchased a 12-month insurance policy for $6,000. The policy goes into effect on January 1, 2018. Dec. 31 Received a bill from Verizon Communications for phone service for the month of December, $700. Payment is due in 30 days. Dec. 31 Arcade game rental fees earned during the second half of December amounted to $25,000, of which $19,000 was received in cash. Data for Adjusting Entries a. The advance payment of rent on December 1 covered a period of three months. b. The annual interest rate on the note payable to Arcade Alley Games is 6 percent. c. The arcade game machines are being depreciated by the straight-line method over a period of eight years. d. Office supplies on hand at December 31 are estimated at $700. e. During December, the company earned $3,700 of the rental fees paid in advance from Party Planners, Inc. on December 8. f. As of December 31, six days’ rent on the pinball machines rented to O’Malley’s Pub on December 26 has been earned. g. Salaries earned by employees since the last payroll date (December 26) amounted to $1,600 as of month-end. h. It is estimated that the company is subject to a combined federal and state income tax rate of 30 percent of income before income taxes (total revenue minus all expenses other than income taxes). These taxes will be paid in 2019. Instructions Perform the following steps of the accounting cycle for the month of December: 1.    Journalize the December transactions. Do not record adjusting entries at this point. 2.    Post the December transactions to the appropriate ledger accounts. 3.    Prepare the unadjusted trial balance. 4.    Prepare the necessary adjusting entries for December. 5.    Post the December adjusting entries to the appropriate ledger accounts. 6.    Prepare an income statement and statement of retained earnings for the year ended December 31, and a balance sheet (in report form) as of December 31 7.    Prepare closing entries and post to ledger accounts. 8.    Prepare an after-closing trial balance as of December 31.

Answer 1