Question

Ch Required information [The following information applies to the questions displayed below.) 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 Retained Earnings Dividends 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 Summary Rental Fees Earned Salaries Expense Maintenance Expense Utilities Expense Rent Expense office Supplies Expense Depreciation Expense Interest Expense 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. Prev 1 of 2 Next e earch Rental Fees.) Dec.12 Paid salaries for the first two weeks in December, $6,24e. 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. Collected $2,400 of the accounts receivable recorded on December 15. Dec.2 Dec.26 Rented a backhoe to Mission Landscaping at a price of $30e 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,e00 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 and broke his arm. The extent of the company's legal and financial responsibility for this dccident, 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.) the backhoe, he fell 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 nonth of December, $840. Payment is due in 30 days. to $24,000, of which $18,720 was Dec. 31 Equipment rental fees earned during the second half of December amoun received in cash. Date for Adjusting Entries a. The advance payment of rent on December 1 covered a period of three months. b. The annual interest rate on the note payable to Rent-It is 6 percent. c. The rental equipment is being depreciated by the straight-line method over a period of eight years. d. Office supplies on hand at December 31 are estimated at $720 e. During December, the company earned $4,440 of the rental fees paid in advance by McNamer Construction Company on December 8 f. As of December 31, six days' rent on the backhoe rented to Mission Landscaping on December 26 has been earned g. Salaries earned by employees since the last payroll date (December 26) amounted to $1,680 at month-end h. 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 Prev 1 of 2 Next Prepare an after-closing trial balance as of December 31 SUSQUEHANNA EQUIPMENT RENTALS After-Closing Trial Balance December 31, Year 1 Debit Credit 0 S Totals Prev 1 of 2 Next> Help Save & Exit Prepare required disclosures to accompany the December 31 financial statements. Your solution should include a separate note addressing each of the following areas: (1) depreciation policy. (2) maturity dates of major liabilities, and (3) potential liability due to pending itigation. Essay Toolbar navigation B I E EE A This question will be sent to your instructor for greding 2 of 2 Nexd

Answer 1

Trial Balance
Particulars	Debit	Credit
Cash	78000
Equity Share Capital		240000
Equipment	288000
Note Payable		120000
Accumulated Depreciation		3000
Interest Payable		600
Rent Receivable	21480
Office supplies asset	1200
Supplier payable		2760
Unearned Rental Fees		5160
Dividend Payable		4000
Advance Insurance Premium	11520
Salary Payable		1680
IT Payable		10800
Reserves and Surplus		12200
Total	400200	400200

Working:

Dec-01		Cash	Dr	240000
		To Equity Share	Cr		240000
Dec-01		Equipmet	Dr	288000
		To Cash	Cr		168000
		To note payable	Cr		120000
Dec-31		Depreciation	Dr	3000
		Accumulated Depre	Cr		3000
Dec-31		Interest account	Dr	600
		To Interest payable	Cr		600
Dec-01		Advance Rent	Dr	9600
		Rent Exps	Dr	4800
		To Cash	Cr		14400
Dec-04		Office supplies asset	Dr	1200
		Supplier payable	Cr		1200
Dec-08		Cash	Dr	9600
		To unearned rental fees	Cr		5160
		To rent	Cr		4440
Dec-12		Salary Exps	Dr	6240
		TO Cash	Cr		6240
Dec-15		Rental fees receivable	Dr	7200
		Cash	Dr	14400
		To rental fees	Cr		21600
Dec-17		Repair Exps	Dr	720
		To suppliers	Cr		720
Dec-23		Cash	DR	2400
		Rental fees receivable	Cr		2400
Dec-26		Rent Receivable	Dr	1800
		TO Rent	Cr		1800
Dec-26		Salary Exps	Dr	6240
		Cash	Cr		6240
Dec-27		Suppliers	Dr	720
		To cash	Cr		720
Dec-28		Divdend	Dr	4000
		TO Dividend Payable	Cr		4000
Dec-29		Insurance prem adv	Dr	11520
		To Cash	Cr		11520
Dec-31		Utilities account	Dr	840
		To payables	Cr		840
Dec-31		Cash	Dr	18720
		Debtors	Dr	5280
		To rent	Cr		24000
Dec-31		Salaries	Dr	1680
		To salary payable	Cr		1680
Dec-31		IT Exps	Dr	10800
		To IT payable	Cr		10800