Question

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On December 1, Year 1, 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	Capital Stock
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 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 $278,400 all of the equipment formerly owned by Rent-It. Paid $130,000 cash and issued a 1-year note payable for $148,400. 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., $2,000. Payment due in 30 days. (These supplies are expected to last for several months; debit the Office Supplies asset account.)
Dec.	8		Received $8,600 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 $18,300, of which $12,400 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 $2,100 of the accounts receivable recorded on December 15.
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, 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 $28,000 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 $8,640. 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, $650. 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

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

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

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

4. Office supplies on hand at December 31 are estimated at $640.

5. During December, the company earned $4,000 of the rental fees paid in advance by McNamer Construction Company on December 8.

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

7. Salaries earned by employees since the last payroll date (December 26) amounted to $1,400 at month-end.

8. 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.

Question:

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

Answer 1

Susquehanna Equipment Rentals Date Journal Enteries Particulars 1.12.Year 1 Cash a/c Dr. To Common Stock (Common Stock issued for cash) Debit in $ Credit in $ 270000 270000 Dr. 278400 1.12. Year 1 Rental Equipment a/c To Cash To Note Payable (Equipment purchased) 130000 148400 9300 1.12.Year 1 Prepaid Rent a/c Dr. To Cash (3 months rent paid in advance) 9300 2000 4.12.Year 1 Office Supplies a/c Dr. To Accounts Payable (Supplies on account) 2000 8600 8.12.Year 1 Cash a/c Dr. To Unearned Rental Fees (Rent revenue received in advance) 8600 Dr. 5000 12.12. Year 1 Salaries expense a/c To Cash (Salary Paid) 5000 5900 12400 15.12.Year 1 Accounts Receivable a/c Dr. Cash a/c Dr. To Rental fees earned (Rental fees earned) 18300 17.12.Year 1 Maintenance expense a/c Dr. To Cash (Repair expense paid) 800 2100 23.12.Year 1 Cash a/c Dr. To Accounts Receivable (Cash collected from debtors) 2100 26.12.Year 1 No Entry

Dr. Date Particulars 26.12.Year 1 Salaries expense a/c To Cash (Salary Paid) Debit in $Credit in $ 5000 5000 Dr. 800) 27.12.Year 1 Accounts Payable a/c To Cash (Creditors paid) 800 2700 28.12.Year 1 Dividends a/c Dr. To Dividends Payable (Dividend declared) 2700 8640 29.12.Year 1 Prepaid Insurance a/c Dr. To Cash (Annual insurance paid) 8640 650 31.12.Year 1 Utilities expense a/c Dr. To Accounts Payable (Utility Expense accrued) 650 4700 15900 31.12.Year 1 Accounts Receivable a/c Dr. Cash a/c Dr. To Rental fees earned (Rental fees earned) 20600

Adjusting Enteries Date Particulars 31.12.Year 1 Rent expense a/c To Prepaid Rent (Rent Expensed) Dr. Debit in $ Credit in $ 31001 3100 742 742 31.12.Year 1 Interest expense a/c Dr. To Interest Payable 148400 x 6% x 1/ 12 (Interest accrued) 29001 2900 31.12.Year 1 Depreciation a/c Dr. To Accumulated Depreciation - Equip (278400)/(8x12) (To record depreciation) 1360 31.12.Year 1 Office supplies expense a/c Dr. To Office Supplies (Supplies Expensed) 2000 - 640 1360 4000 31.12.Year 1 Unearned Rental fees a/c Dr. To Rental fees earned (Rental fees earned) 4000 1980 31.12.Year 1 Accounts Receivable a/c Dr. To Rental fees earned (Rental fees earned) 330 x 6 = 1980 1980 1400 31.12.Year 1 Salaries expense a/c Dr. To Salaries Payable (Salary Expense accrued) 1400 9571 31.12.Year 1 Income tax expense a/c Dr. To Income tax payable (Income tax expense accrued) 9571 Closing Enteries Date Particulars 31.12.Year 1 Income Summary a/c Dr. To Maintenance expense TO Salaries expense To Salaries expense To Utilities expense To Rent expense To Interest expense To Depreciation To Office supplies expense To Income tax expense (Expense accounts closed) Debit in $ Credit in $ 30523 800 1400 10000 650 3100 742 2900 1360 9571 Dr. 44880 31.12.Year 1 Rental fees earned a/c To Income Summary (Revenue accounts closed) 44880 14357 31.12.Year 1 Income Summary a/c Dr. To Retained Earnings (Profits transferred) 14357 Dr. 2700 31.12.Year 1 Retained Earnings a/c To Dividends (Dividends transferred) 2700

Trial Balance For the period ending 31.12.Year 1 Unadjusted Adjustments Adjusted Income Statement Balance sheet Particulars Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ Cash 149460 149460 149460 Accounts Receivable 8500 1980 10480 10480 Prepaid Rent 9300 3100 6200 6200 Prepaid Insurance 8640 8640 8640 Office Supplies 2000 1360 640 640 Rental Equipment 278400 278400 278400 Accumulated Depreciation -Equip 2900 2900 2900 Accounts Payable 1850 1850 1850 Salaries Payable 1400 1400 1400 Unearned Rental Fees 8600 4000 4600 4600 Dividends Payable 2700 2700 2700 Income tax payable 9571 9571.2 9571 Interest Payable 742 742 742 Note Payable 148400 148400 148400 Common Stock 270000 270000 270000 Retained Earnings 11657 Dividends 2700 2700 Rental fees earned 38900 5980 44880 44880 Maintenance expense 800 800 800 Salaries expense 1400 1400 1400 Salaries expense 10000 10000 10000 Utilities expense 650 650 650 Rent expense 3100 3100 3100 Interest expense 742 742 742 Depreciation 2900 2900 2900 Office supplies expense 1360 1360 1360 Income tax expense 9571 9571 9571 Totals 470450 470450 2505325053487043487043 30523 44880 453820 453820 14357

44880 Statement of Income For the period ending 31.12.Year 1 Rental fees earned Less: Maintenance expense 800 Salaries expense 1400 Salaries expense 10000 Utilities expense 650 Rent expense 3100 Interest expense 742 Depreciation 2900 Office supplies expense 1360 20952 23928 9571 14357 Less:Tax at 40% Statement of Retained Earnings For the period ending 31.12.Year 1 1.1. Year 1 Add:Net Income 14357 14357 Less:Dividends -2700 11657

Amounts in $ Amounts in $ Cash Balance sheet As at 31.12.Year 1 Assets Amounts in $ Amounts in $ Liabilities Current Assets Current Liabilities 149460 Accounts Payable Accounts Receivable 10480 Salaries Payable Prepaid Rent 6200 Unearned Rental Fees Prepaid Insurance 8640 Dividends Payable Office Supplies 640 175420 Income tax payable Interest Payable Non Current Assets Rental Equipment 278400 Non Current Liabilties Accumulated Deprecia -2900 275500 Note Payable 1850 1400 4600 2700 9571.2 742 20863 148400 Shareholders Equity Common Stock 270000 Retained Earnings 11657 450920 Total Liabilities & Shareholders eq. 281657 450920 Total Assets