Question

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

Cash, Accounts Receivable, Prepaid Rent, Unexpired Insurance, Office Supplies, Rental Equipment, Accumulated Depreciation: Rental Equipment, Notes Payable, Accounts Payable, Interest Payable, Salaries Payable, Dividends Payable, Unearned Rental Fees, Income Taxex Payable, Captial Stock, Retained Earnings, Dividends, Income Summary, Rental Fees Earned, Salaries Expense, Maintenance Expense, Utilities Expense, Rent Expense, Office Supplies Expense, Depreciation Expense, Interest Expense, 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 John and Patty Driver 24,000 shares of capital stock in exchange for a total of $240,000 cash.

DEC. 1: Purchased for $192,000 all of the equipment formerly owned by Rent-It. Paid $132,000 cash and issued a 1-year note payable for $60,000. The note, plus all 12 months of accured interest, are due November 30, year 2.

DEC. 1: Paid $9,300 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., $1,300. Payment due in 30 days. (These supplies are expected to last for several months; debit the office supplies asset account.)

DEC. 8: Received $9,000 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, $4,400.

DEC. 15: Excluding the McNamer advance, equipment rental fees earned during the first 15 days of December amounted to $18,600, of which $12,600 was received in cash.

DEC. 17: Purchased on account from Earth Movers, Inc., $800 in parts needed to repair a rental tractor. (Debit an expense account.) Payment is due in 10 days.

DEC. 23: Collected $2,400 of the accounts receivable recorded on December 15.

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 backhow for about two or three weeks.

DEC. 26: Paid biweekly salaries, $4,400.

DEC. 27: Paid the account payable to Earth Movers, Inc., $800.

DEC. 28: Declared a dividend of 10 cents per share, payable on January 15, year 2.

DEC. 29: Susquehanna Equipment Rentals was named, along with Mission Landscaping and Collier Construction, as a co-defendant in a $22,000 lawsuit filed on behalf of Kevin Davenport. Mission Landscaping had left the rented backhow in a fenced construction site owned by Collier Construction. After working hours on December 26, 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 polict for $8,800. This policy protects the compnay against liability for injuried and propert damage caused by its equipment. However, the policy goes into effect on January 1, year 2, and affords no coverage for the injuries to Kevin Davenport on December 26.

DEC. 31: Received a bill from Universal Utilities for the month of December, $670. Payment is due in 30 days.

DEC. 31: Equipment rental fees earned during the second half of December amounted to $20,800, of which $15,900 was received in cash.

Data for adjusting entries:

The advance payment of rent on December 1 covered a period of three months.

The annual interest rate on the note payable to Rent-It is 6 percent.

The rental equipment is being depreciated by the straight-line method over a period of eight years.

Office supplies on hand at December 31 are estimated at $700.

During December, the company earned $4,600 of the rental fees pain in advance be McNamer Construction Company on December 8.

As of December 31, six days’ rent on the backhoe rented to Mission Landscaping on December 26 has been earned.

Salaries earned by employees since the last payroll date (December 26) amounted to $1,600 at month-end.

It is estimated that the company is subject to a combined federal and state income tax rate of 40 percent of income before income taxes (total revenue minus all expenses other than income taxes). These taxes will be payable in Year 2.

Questions:

1a. Journalize the December Transactions. Do not record adjusting entries at this point.

1b. Prepare the necessary adjusting entries for December.

1c. Prepare closing entries and post to ledger accounts.

1d. Post the entries into the following ledger accounts. (enter the transactions in chronological order for each of the ledger accounts. Round your final answers to the nearest whole dollar.)

1e. Prepare an income statement for the year ended December 31.

1f. Prepare a statement of Retained Earnings for the year ended December 31.

1g. Prepare a balance sheet (In Report Form) as of December 31. (amounts to be deducted should be indicated by a minus sign. Round your final answers to the nearest whole dollar.)

1h. Prepare an after-closing trial balance as of December 31.

Answer 1

1.a.
Date	Account title	Debit	Credit
1-Dec	Cash	240000
	Capital stock		240000
	Rental Equipment	192000
	Cash		132000
	Notes Payable		60000
	Prepaid Rent	9300
	Cash		9300
4-Dec	Office Supplies	1300
	Accounts Payable		1300
8-Dec	Cash	9000
	Unearned Rental fees		9000
12-Dec	Salaries Expense	4400
	Cash		4400
15-Dec	Cash	12600
	Accounts Receivable	6000
	Rental Fees Earned		18600
17-Dec	Maintenance Expense	800
	Accounts Payable		800
23-Dec	Cash	2400
	Accounts Receivable		2400
26-Dec	Accounts Receivable	3640
	Unearned Rental fees		3640
	260*14 days
	(minimum income accrued)
	Salaries Expense	4400
	Cash		4400
27-Dec	Accounts Payable	800
	Cash		800
28-Dec	Dividends	2400
	Dividends Payable		2400
	(24000*0.10)
29-Dec	NO Entry
	Unexpired Insurance	8800
	Cash		8800
31-Dec	Utilities Expense	670
	Accounts Payable		670
	Cash	15900
	Accounts Receivable	4900
	Rental Fees Earned		20800
1.b.	Adjusting Entries
	Rent Expense	3100
	Prepaid Rent		3100
	(9300/3)
	Interest expense	300
	Interest payable		300
	(60000*6%*1/12)
	Depreciation Expense	2000
	Accumulated Depreciation: Rental Equipment		2000
	(192000/8 yrs./12 mths.)
	Office Supplies Expense	600
	Office Supplies		600
	(1300-700)
	Unearned Rental fees	4600
	Rental Fees Earned		4600
	Unearned Rental fees	1560
	Rental Fees Earned		1560
	(260*6)
	Salaries Expense	1600
	Salaries Payable		1600
	Income Taxes Expense	11076
	Income Taxes Payable		11076
	Rental Fees Earned	45560
	Income summary		45560
1.c.	Closing Entries
	Income summary	28946
	Salaries Expense		10400
	Maintenance Expense		800
	Utilities Expense		670
	Rent Expense		3100
	Interest expense		300
	Depreciation Expense		2000
	Office Supplies Expense		600
	Income Taxes Expense		11076
	Income summary	16614
	Retained Earnings		16614
	Retained Earnings	2400
	Dividends		2400
		637666	637666

1.d.	LEDGER ACCOUNTS			Net ledger balances
Date	Account title	Debit	Credit	Debit	Credit
4-Dec	Accounts Payable		1300
17-Dec	Accounts Payable		800
27-Dec	Accounts Payable	800
31-Dec	Accounts Payable		670		1970
15-Dec	Accounts Receivable	6000
23-Dec	Accounts Receivable		2400
26-Dec	Accounts Receivable	3640
31-Dec	Accounts Receivable	4900		12140
31-Dec	Accumulated Depreciation: Rental Equipment		2000		2000
1-Dec	Capital stock		240000		240000
1-Dec	Cash	240000
1-Dec	Cash		132000
1-Dec	Cash		9300
8-Dec	Cash	9000
12-Dec	Cash		4400
15-Dec	Cash	12600
23-Dec	Cash	2400
26-Dec	Cash		4400
27-Dec	Cash		800
29-Dec	Cash		8800
31-Dec	Cash	15900		120200
31-Dec	Depreciation Expense	2000
31-Dec	Depreciation Expense		2000
28-Dec	Dividends	2400
31-Dec	Dividends		2400
28-Dec	Dividends Payable		2400		2400
31-Dec	Income summary		45560
31-Dec	Income summary	28946
31-Dec	Income summary	16614			0
31-Dec	Income Taxes Expense	11076
31-Dec	Income Taxes Expense		11076
31-Dec	Income Taxes Payable		11076		11076
31-Dec	Interest expense	300
31-Dec	Interest expense		300
31-Dec	Interest payable		300		300
17-Dec	Maintenance Expense	800
31-Dec	Maintenance Expense		800
1-Dec	Notes Payable		60000		60000
4-Dec	Office Supplies	1300
31-Dec	Office Supplies		600	700
31-Dec	Office Supplies Expense	600
31-Dec	Office Supplies Expense		600
1-Dec	Prepaid Rent	9300
31-Dec	Prepaid Rent		3100	6200
31-Dec	Rent Expense	3100
31-Dec	Rent Expense		3100
1-Dec	Rental Equipment	192000		192000
15-Dec	Rental Fees Earned		18600
31-Dec	Rental Fees Earned		20800
31-Dec	Rental Fees Earned		4600
31-Dec	Rental Fees Earned		1560
31-Dec	Rental Fees Earned	45560
31-Dec	Retained Earnings		16614
31-Dec	Retained Earnings	2400			14214
12-Dec	Salaries Expense	4400
26-Dec	Salaries Expense	4400
31-Dec	Salaries Expense	1600
31-Dec	Salaries Expense		10400
31-Dec	Salaries Payable		1600		1600
8-Dec	Unearned Rental fees		9000
26-Dec	Unearned Rental fees		3640
31-Dec	Unearned Rental fees	4600
31-Dec	Unearned Rental fees	1560			6480
29-Dec	Unexpired Insurance	8800		8800
31-Dec	Utilities Expense	670
31-Dec	Utilities Expense		670
		637666	637666	340040	340040

1.e.Income Statement
Rental Fees Earned		45560
Less: Operating expenses:
Salaries Expense	10400
Maintenance Expense	800
Utilities Expense	670
Rent Expense	3100
Interest expense	300
Depreciation Expense	2000
Office Supplies Expense	600	17870
Income before tax		27690
Less: Income Taxes Expense		11076
Net Income		16614
1.f. Statement of Retained earnings
Net Income for the month		16614
Less: Dividends		2400
Closing balance		14214

1.g. Balance Sheet
As at Dec 31.
Assets
Current Assets
Cash	120200
Accounts Receivable	12140
Prepaid Rent	6200
Unexpired Insurance	8800
Office Supplies	700
Total current assets		148040
Fixed asset:
Rental Equipment	192000
Less: Accumulated Depreciation: Rental Equipment	-2000
Net fixed asset		190000
Total assets		338040
Liabilities & Equity
Current Liabilities
Accounts Payable	1970
Salaries Payable	1600
Unearned Rental fees	6480
Interest payable	300
Notes Payable	60000
Income Taxes Payable	11076
Dividends Payable	2400
Total Current Liabilities		83826
Owner's Equity
Capital stock	240000
Retained Earnings	14214
Total equity		254214
Total Liabilities & Equity		338040
1.h.After-Closing Trial Balance
As at Dec 31
	Debit	Credit
Cash	120200
Accounts Receivable	12140
Prepaid Rent	6200
Unexpired Insurance	8800
Office Supplies	700
Rental Equipment	192000
Accumulated Depreciation: Rental Equipment		2000
Accounts Payable		1970
Salaries Payable		1600
Unearned Rental fees		6480
Income Taxes Payable		11076
Dividends Payable		2400
Notes Payable		60000
Interest payable		300
Capital stock		240000
Retained Earnings		14214
Total	340040	340040