Question

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 27,000 shares of capital stock in exchange for a total of $270,000 cash.
Dec.	1		Purchased for $201,600 all of the equipment formerly owned by Rent-It. Paid $138,000 cash and issued a 1-year note payable for $63,600. The note, plus all 12 months of accrued 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., $1,200. Payment due in 30 days. (These supplies are expected to last for several months; debit the Office Supplies asset account.)
Dec.	8		Received $8,500 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, $4,900.
Dec.	15		Excluding the McNamer advance, equipment rental fees earned during the first 15 days of December amounted to $18,600, of which $12,100 was received in cash.
Dec.	17		Purchased on account from Earth Movers, Inc., $600 in parts needed to repair a rental tractor. (Debit an expense account.) Payment is due in 10 days.
Dec.	23		Collected $2,200 of the accounts receivable recorded on December 15.
Dec.	26		Rented a backhoe to Mission Landscaping at a price of $250 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, $4,900.
Dec.	27		Paid the account payable to Earth Movers, Inc., $600.
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 $24,000 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 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 policy for $9,120. This policy protects the company against liability for injuries and property damage caused by its equipment. However, the policy goes into effect on January 1, Year 2, and affords no coverage for the injuries sustained by Kevin Davenport on December 26.
Dec.	31		Received a bill from Universal Utilities for the month of December, $680. Payment is due in 30 days.
Dec.	31		Equipment rental fees earned during the second half of December amounted to $20,600, 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 $620.

During December, the company earned $4,600 of the rental fees paid in advance by 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 $1,900 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.

1. Record the entry to close revenue earned to income summary.

2. Record the entry to close all expense accounts to income summary.

3. Record the entry to transfer net income earned in Year 1 to the retained earnings account.

4. Record the entry to transfer dividends declared in 2015 to the retained earnings account.

Answer 1

Closing Journal Entries:

1. Record the entry to close revenue earned to income summary.
Date	Account Title	Debit-$	Credit-$
Dec. 31	Rental Revenue Fees	45,300
	Income Summary		45,300
	Rent Revenue Fess closed
2. Record the entry to close all expense accounts to income summary.
Date	Account Title	Debit-$	Credit-$
Dec. 31	Income Summary	29,039
	Salaries Expense		11,700
	Repairs Expense		600
	Utilities Expense		680
	Rent Expense		3,100
	Depreciation Expense		2,100
	Interest Expense		318
	Income Tax Expense		107,21
	Expense closed to Income summary
3. Record the entry to transfer net income earned in Year 1 to the
retained earnings account
Date	Account Title	Debit-$	Credit-$
	Income Summary (Net Income)	16,261
	Retained Earning		16.261
4. Record the entry to transfer dividends declared in 2015 to the retained earnings account.
Date	Account Title	Debit-$	Credit-$
	Retained Earning	2,700
	Dividend		2,700

Working Notes: General Journal Entries

Date	Account Tittle	Debit	Credit
Dec. 1	Cash	$270,000
	Common Stock		$270,000
	issue of common stock for cash
Dec.1	Equipment	201,600
	Cash		138,000
	Note Payable		63,600
	for aquisitionof equipment
Dec.1	Prepaid Rent	9,300
	Cash		9,300
	For advance payment of rent
Dec.4	Office Supplies	1,200
	Account Payable		1,200
	credit purchase of supplies
Dec. 8	Cash	8,500
	Unearned Rental Fees		8,500
	unearned Revenue recorded
Dec. 12	Salaries Expense	4,900
	Cash		4,900
	cash payment of salaries
Dec.15	Cash	12,100
	Account Receivable	6,500
	Rental Revenue		18,600
	To recorde revenue earned
Dec.17	Repairs Expense	600
	Account Payable		600
	To record Rep. exp on account
Dec. 23	Cash	2,200
	Account Receivable		2,200
	Cash collected from AR
Dec.26	No entry Required	0	0
Dec. 26	Salaries Expense	4,900
	Cash		4,900
	Salaries Expenses Paid
Dec.27	Account Payable	600
	Cash		600
	Being Payment made for AP
Dec.28	Dividend	2,700
	Dividend Payable		2,700
	Dividend Declared recorded
Dec.29	No entry Required	0	0
Dec.29	Prepaid Insurance	9,120
	Cash		9,120
	Insurance paid in advance
Dec. 31	Utilities Expnse	680
	Account Payable		680
	Utilities Expnse being due
Dec. 31	Cash	15,900
	Account Receivable	4,700
	Rental Revenue		20,600
	Revenue earned recorded
Adjusting Entries
Dec. 31	Rent Expense	3,100
	Prepaid Rent		3,100
	One month rent expenses expied
	Interest Expense	318
	Interest Payable		318
	Accrued interest on AP ford Dec.
	Depreciation Expense	2,100
	Accumulated Depreciation		2,100
	Dep. for deceber recoded
	Unearned Rental fees	4,600
	Rental Revenue		4,600
	Unearned Rental Fees expired
	Account Receivable	1,500
	Rental Revenue		1,500
	Revenue earned recorded
	Salaries Expense	1,900
	Salaries Payable		1,900
	outstanding salary for dec. recorded
	Income Tax Expense	10,721
	Tax Payable		10,721
	Income tax levied @40%