Question

A COMPREHENSIVE ACCOU CYCLE PROBLEM On December 1, 2009, John and Patty Driver formed a corporation called Susquehanna Equip- ment 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 Income Taxes Payable Accounts Receivable Capital Stock Prepaid Rent Retained Earnings Unexpired Insurance Dividends Office Supplies Income Summary Rental Equipment Rental Fees Earned Accumulated Depreciation: Salaries Expense Rental Equipment Maintenance Expense Notes Payable Utilises Expense Accounts Payable Rent Expense Interest Payable Office Supplies Expense Salaries Payable Depreciation Expense 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 John and Patty Driver 20,000 shares of capital stock in exchange for a total of $200,000 cash. Dec. 1 Purchased for $240,000 all of the equipment formerly owned by Rent-It. Paid $140,000 cash and issued a one-year note pay e for $100,000. Dec. 1 Paid $12.000 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., $1,000. Payment due in 30 days. (These supplies are expected to last for several months; debit the Office Supplies asset account.) Dec. 8 Received $8,000 cash as advance payment on equipment rental from MeNamer Construction Company. (Credit Unearned Rental Fees.) Dec. 12 Paid salaries for the first two weeks in December, $5,200. Dec. 15 Excluding the MeNamer advance, equipment rental fees earned during the first 15 days of December amounted to $18.000, of which $12,000 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 $2,000 of the accounts receivable recorded on December 15. Dec. 23 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, $5,200. 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, 2010.

Answer 1

Susquehanna Equipment Rentals Journal Enteries Date Particulars 1.12.Year 1 Cash a/c Dr. To Common Stock (Common Stock issued for cash) Debit in $Credit in $ 200000 200000 Dr. 240000 1.12.Year 1 Rental Equipment a/c To Cash To Note Payable (Equipment purchased) 140000 100000 12000 1.12.Year 1 Prepaid Rent a/c Dr. To Cash (3 months rent paid in advance) 12000 1000 4.12.Year 1 Office Supplies a/c Dr. To Accounts Payable (Supplies on account) 1000 8000 8.12.Year 1 Cash a/c Dr. To Unearned Rental Fees (Rent revenue received in advance) 8000 Dr. 5200 12.12.Year 1 Salaries expense a/c To Cash (Salary Paid) 5200 6000 12000 15.12.Year 1 Accounts Receivable a/c Dr. Cash a/c Dr. To Rental fees earned (Rental fees earned) 18000 600 17.12.Year 1 Maintenance expense a/c Dr. To Cash (Repair expense paid) 600 2000 23.12.Year 1 Cash a/c Dr. To Accounts Receivable (Cash collected from debtors) 2000 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 $ 5200 5200 600 27.12.Year 1 Accounts Payable a/c Dr. To Cash (Creditors paid) 600 20000 28.12.Year 1 Dividends a/c Dr. To Dividends Payable (Dividend declared) 20000 9600 29.12.Year 1 Prepaid Insurance a/c Dr. To Cash (Annual insurance paid) 9600 700 31.12.Year 1 Utilities expense a/c Dr. To Accounts Payable (Utility Expense accrued) 700 4400 15600 31.12.Year 1 Accounts Receivable a/c Dr. Cash a/c Dr To Rental fees earned (Rental fees earned) 20000

Adjusting Enteries Date Particulars 31.12.Year 1 Rent expense a/c To Prepaid Rent (Rent Expensed) Dr. Debit in $Credit in $ 4000 4000 500 500 31.12.Year 1 Interest expense a/c Dr. To Interest Payable 100000 x 6% x 1/ 12 (Interest accrued) 2500 2500 31.12.Year 1 Depreciation a/c Dr. To Accumulated Depreciation - Equip ( 240000)/(8x12) (To record depreciation) 400 31.12.Year 1 Office supplies expense a/c Dr. To Office Supplies (Supplies Expensed) 1000 - 600 400 3700 31.12.Year 1 Unearned Rental fees a/c Dr. To Rental fees earned (Rental fees earned) 3700 1500 31.12.Year 1 Accounts Receivable a/c Dr. To Rental fees earned (Rental fees earned) 250 x 6 = 1500 1500 1400 31.12.Year 1 Salaries expense a/c Dr. To Salaries Payable (Salary Expense accrued) 1400 9080 31.12.Year 1 Income tax expense a/c Dr. To Income tax payable (Income tax expense accrued) 9080 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 $ 29580 600 1400 10400 700 4000 500 2500 400 9080 Dr. 43200 31.12.Year 1 Rental fees earned a/c To Income Summary (Revenue accounts closed) 43200 13620 31.12.Year 1 Income Summary a/c Dr. To Retained Earnings (Profits transferred) 13620 Dr. 20000 31.12.Year 1 Retained Earnings a/c To Dividends (Dividends transferred) 20000

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 64400 64400 64400 Accounts Receivable 8400 1500 9900 9900 Prepaid Rent 12000 4000 8000 8000 Prepaid Insurance 9600 9600 9600 Office Supplies 1000 400 600 600 Rental Equipment 240000 240000 240000 Accumulated Depreciation - Equip 2500 2500 2500 Accounts Payable 1100 1100 1100 Salaries Payable 1400 1400 1400 Unearned Rental Fees 8000 3700 4300 4300 Dividends Payable 20000 20000 20000 Income tax payable 9080 9080 9080 Interest Payable 500 500 500 Note Payable 100000 100000 100000 Common Stock 200000 200000 200000 Retained Earnings -6380 Dividends 20000 20000 Rental fees earned 38000 5200 43200 43200 Maintenance expense 600 600 600 Salaries expense 1400 1400 1400 Salaries expense 10400 10400 10400 Utilities expense 700 700 700 Rent expense 4000 4000 4000 Interest expense 500 500 500 Depreciation 2500 2500 2500 Office supplies expense 400 400 400 Income tax expense 9080 9080 9080 Totals 367100 367100 23080 23080 382080 382080 29580 43200 332500 332500 13620 0

43200 Statement of Income For the period ending 31.12.Year 1 Rental fees earned Less: Maintenance expense 600 Salaries expense 1400 Salaries expense 10400 Utilities expense 700 Rent expense 4000 Interest expense 500 Depreciation 2500 Office supplies expense 400 20500 22700 9080 Less:Tax at 40% 13620 0 Statement of Retained Earnings For the period ending 31.12.Year 1 1.1.Year 1 Add:Net Income 13620 13620 Less:Dividends -20000 -6380

Amounts in $ Amounts in $ Balance sheet As at 31.12.Year 1 Assets Amounts in $ Amounts in $ Liabilities Current Assets Current Liabilities Cash 64400 Accounts Payable Accounts Receivable 9900 Salaries Payable Prepaid Rent 8000 Unearned Rental Fees Prepaid Insurance 9600 Dividends Payable Office Supplies 600 92500 Income tax payable Interest Payable Non Current Assets Rental Equipment 240000 Non Current Liabilties Accumulated Deprecia -2500 237500 Note Payable 1100 1400 4300 20000 9080 500 36380 100000 Shareholders Equity Common Stock 200000 Retained Earnings -6380 330000 Total Liabilities & Shareholders eq. 193620 Total Assets 330000