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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 20,000 shares of capital stock in exchange for a total of $240,000 cash.
Dec.	1		Purchased for $288,000 all of the equipment formerly owned by Rent-It. Paid $168,000 cash and issued a 1-year note payable for $120,000. The note, plus all 12 months of accrued interest, are due November 30, Year 2.
Dec.	1		Paid $14,400 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 $9,600 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, $6,240.
Dec.	15		Excluding the McNamer advance, equipment rental fees earned during the first 15 days of December amounted to $21,600, of which $14,400 was received in cash.
Dec.	17		Purchased on account from Earth Movers, Inc., $720 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 $300 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, $6,240.
Dec.	27		Paid the account payable to Earth Movers, Inc., $720.
Dec.	28		Declared a dividend of 12 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 $30,000 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 $11,520. 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, $840. Payment is due in 30 days.
Dec.	31		Equipment rental fees earned during the second half of December amounted to $24,000, of which $18,720 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 $720.
5. During December, the company earned $4,440 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 $1,680 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.

Prepare a balance sheet (in report form) as of December 31. (Amounts to be deducted should be indicated by a minus sign.)

	SUSQUEHANNA EQUIPMENT RENTALS Balance Sheet December 31, Year 1 Assets Rental equipment 0 Total assets $0 Liabilities & Stockholders’ equity Liabilities: Total liabilities $0 Stockholders’ equity: Total stockholders’ equity $0 Total liabilities and stockholders’ equity $0

Answer 1

Susquehanna Equipment Rentals Balance Sheet Assets Current Assets Cash Accounts Receivable Prepaid Rent Unexpired Insurance Supplies Total Current Assets 78,000 11,880 9,600 11,520 720 111,720 Fixed Assets Rental Equipment Accumulated Depreciation: Rental Equipment Total Fixed Assets Total Assets 288,000 (3,000) 285,000 396,720 Liabilities Current Liabilities Accounts Payable Notes Payable Interest Payable Salaries Payable Dividends Payable Unearned Rental Fees Income Taxes Payable Total Current Liabilities 2,040 120,000 600 1,680 2,400 5,160 10,896 142,776 Stockholders Equity Capital Stock Retained Earnings Total Stockholders Equity Total Liabilities & Stockholders Equity 240,000 13,944 253,944 396,720

Susquehanna Equipment Rentals Journal entries Date Account 1-Dec Cash Capital Stock Credit Calculation Debit 240,000 240,000 288,000 1-Dec Rental Equipment Cash Notes Payable 168,000 120,000 14,400 3 months 1-Dec Prepaid Rent Cash 14,400 1,200 4-Dec Office Supplies Accounts Payable 1,200 9,600 8-Dec Cash Unearned Rental Fees 9,600 6,240 12-Dec Salaries expense Cash 6,240 15-Dec Cash Accounts Receivable Rental Fees Earned 14,400 7,200 21,600 720 17-Dec Maintenance expense Accounts Payable 720 2,400 23-Dec Cash Accounts Receivable 2,400 23-Dec NO ENTRY 6,240 26-Dec Salaries expense Cash 6,240 720 27-Dec Accounts Payable Cash 720 2,400 =20,000*$0.12 28-Dec Dividends Dividends Payable 2,400 29-Dec NO ENTRY 11,520 29-Dec Unexpired Insurance Cash 11,520 840 31-Dec Utilities expense Accounts Payable 840 31-Dec Cash Accounts Receivable Rental Fees Earned 18,720 5,280 24,000

Adjusting entries 31-Dec Rent expense Prepaid Rent 4,800 =14,400/3 4,800 600 =120,000*6%*1/12 31-Dec Interest expense Interest Payable 600 3,000 =288,000/8*1/12 31-Dec Depreciation expense Accumulated Depreciation: Rental Equipment 3,000 480 =1,200-720 31-Dec Office Supplies expense Office Supplies 480 4,440 31-Dec Unearned Rental Fees Rental Fees Earned 4,440 1,800 =300*6 31-Dec Accounts Receivable Rental Fees Earned 1,800 1,680 31-Dec Salaries expense Salaries Payable 1,680 10,896 From Income Statement 31-Dec Income Taxes Expense Income Taxes Payable 10,896

Date Debit Date Credit Accounts Receivable 15-Dec $ 7,200 23-Dec $ 2,400 31-Dec $ 5,280 31-Dec $ 1,800 Date Debit Date Credit Prepaid Rent 1-Dec $ 14,400 31-Dec $ 4,800 Susquehanna Equipment Rentals TAccounts Date Debit Date Credit Cash 1-Dec $240,000 1-Dec $168,000 8-Dec $ 9,600 1-Dec $ 14,400 15-Dec $ 14,400 12-Dec $ 6,240 23-Dec $ 2,400 26-Dec $ 6,240 31-Dec $ 18,720 27-Dec $ 720 29-Dec $ 11,520 Date Debit Date Credit Unexpired Insurance 29-Dec $ 11,520 Bal. Bal. $ 78,000 Office Supplies 4-Dec $ 1,200 31-Dec $ Bal. $ 11,880 Rental Equipment 1-Dec $ 288,000 Bal. $ 9,600 Accum. Depr.- Rental Equipment 31-Dec $ 3,000 $ 11,520 Notes Payable 1-Dec $120,000 480 Bal. Bal. $ 720 Accounts Payable 4-Dec $ 27-Dec $ 720 17-Dec $ 31-Dec $ $ 288,000 Interest Payable 31-Dec $ Bal. $ 3,000 Salaries Payable 31-Dec $ 1,680 $120,000 Dividends Payable 28-Dec $ 2,400 600 1,200 720 840 2,040 Bal. Bal. $ Unearned Rental Fees 31-Dec $ 4,440 8-Dec $ Bal. $ 600 Income Taxes Payable 31-Dec $ 10,896 $ 1,680 Capital Stock 1-Dec $ 240,000 Bal. $ 2,400 Retained Earnings 31-Dec $ 2,400 31-Dec $ 16,344 9,600 Bal. $ 240,000 Bal. $ 13,944 Bal. $ 5,160 Dividends 2,400 31-Dec $ 2,400 Bal. $ 10,896 Income Summary 31-Dec $ 35,496 31-Dec $ 51,840 31-Dec $ 16,344 28-Dec $ Bal. $ Salaries expense 12-Dec $ 6,240 26-Dec $ 6,240 31-Dec $ 1,680 31-Dec $ 14,160 Maintenance expense 17-Dec $ 720 Bal. $ Rental Fees Earned 15-Dec $ 21,600 31-Dec $ 24,000 31-Dec $ 4,440 31-Dec $ 51,840 31-Dec $ 1,800 Utilities expense 31-Dec $ 840 31-Dec $ 720 31-Dec $ 840 - Bal. $ - Bal. $ Rent expense 31-Dec $ 4,800 31-Dec $ Bal. $ - Office Supplies expense 31-Dec $ 480 31-Dec $ Bal. $ Interest expense 31-Dec $ 600 31-Dec $ 4,800 Depreciation expense 31-Dec $ 3,000 31-Dec $ 3,000 480 600 Bal. $ Bal. Bal. Bal. $ . Income Taxes Expense 31-Dec $ 10,896 31-Dec $ 10,896 Bal. $

Susquehanna Equipment Rentals Accounts Cash Accounts Receivable Prepaid Rent Unexpired Insurance Office Supplies Rental Equipment Accumulated Depreciation: Rental Equipment Accounts Payable Notes Payable Interest Payable Salaries Payable Dividends Payable Unearned Rental Fees Income Taxes Payable Capital Stock Retained Earnings Dividends Rental Fees Earned Salaries expense Maintenance expense Utilities expense Rent expense Office Supplies expense Depreciation expense Interest expense Income Taxes Expense Totals Adjusted TB Debit Credit 78,000 11,880 9,600 11,520 720 288,000 3,000 2,040 120,000 600 1,680 2,400 5,160 10,896 240,000 2,400 51,840 14,160 720 840 4,800 480 3,000 600 10,896 437,616 437,616

Susquehanna Equipment Rentals Income Statement 51,840 Rental Fees Earned Expenses Salaries expense Maintenance expense Utilities expense Rent expense Office Supplies expense Depreciation expense Interest expense Total Expenses Income before income taxes Income taxes @ 40% Net income 14,160 720 840 4,800 480 3,000 600 24,600 27,240 10,896 16,344 =27,240*40% Statement of Retained Earnings Beginning balance Net Income Less Dividends Ending Balance 16,344 (2,400) 13,944