COMPREHENSIVE ACCOUNTING CYCLE PROBLEM On December 1 2011 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 RentIt 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 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 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 20000 shares of capital stock in exchange for a total of 200000 cash Dec 1 Purchased for 240000 all of the equipment formerly owned by RentIt Paid 140000 cash and issued a oneyear note payable for 100000 The note plus all 12months of accrued interest are due November 30 2012 Dec 1 Paid 12000 to Shapiro Realty as three months advance rent on the rental yard and office formerly occupied by RentIt Dec 4 Purchased office supplies on account from Modern Office Co 1000 Payment due in 30 days These supplies are expected to last for several months debit the Office Supplies asset account Dec 8 Received 8000 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 5200 Dec 15 Excluding the McNamer advance equipment rental fees earned during the first 15 days of December amounted to 18000 of which 12000 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 2000 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 5200 Dec 27 Paid the account payable to Earth Movers Inc 600 COMPREHENSIVE PROBLEM Susquehanna Equipment Rentals 241 wil11048ch05190243indd 241 il11048ch05190243indd 241 11310 145 PM 1310 145 PM Confirming Pages 242 Chapter 5 The Accounting Cycle Reporting Financial Results Dec 28 Declared a dividend of 10 cents per share payable on January 15 2012 Dec 29 Susquehanna Equipment Rentals was named along with Mission Landscaping and Collier Construction as a codefendant in a 25000 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 companys 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 12month publicliability insurance policy for 9600 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 2012 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 700 Payment is due in 30 days Dec 31 Equipment rental fees earned during the second half of December amounted to 20000 of which 15600 was received in cash Data 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 RentIt is 6 percent c The rental equipment is being depreciated by the straightline method over a period of eight years d Office supplies on hand at December 31 are estimated at 600 e During December the company earned 3700 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 1400 at month