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On December 1, Year 1, John and Patty Driver formed acorporation called Susquehanna Equipment Rentals. The newcorporation was able to begin operations immediately by purchasingthe assets and taking over the location of Rent-It, an equipmentrental company that was going out of business. The newly formedcompany 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. Closingentries are performed annually on December 31. During December, thecorporation entered into the following transactions.

Dec.	1		Issued to John and Patty Driver 20,000 shares of capital stockin exchange for a total of $240,000 cash.
Dec.	1		Purchased for $288,000 all of the equipment formerly owned byRent-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 dueNovember 30, Year 2.
Dec.	1		Paid $14,400 to Shapiro Realty as three months’ advance rent onthe 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 tolast for several months; debit the Office Supplies assetaccount.)
Dec.	8		Received $9,600 cash as advance payment on equipment rental fromMcNamer 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 earnedduring 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 partsneeded 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 December15.
Dec.	26		Rented a backhoe to Mission Landscaping at a price of $300 perday, to be paid when the backhoe is returned. Mission Landscapingexpects 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 January15, Year 2.
Dec.	29		Susquehanna Equipment Rentals was named, along with MissionLandscaping and Collier Construction, as a co-defendant in a$30,000 lawsuit filed on behalf of Kevin Davenport. MissionLandscaping had left the rented backhoe in a fenced constructionsite owned by Collier Construction. After working hours on December26, Davenport had climbed the fence to play on parked constructionequipment. While playing on the backhoe, he fell and broke his arm.The extent of the company’s legal and financial responsibility forthis accident, if any, cannot be determined at this time.(Note: This event does not require ajournal entry at this time, but may require disclosure in notesaccompanying the statements.)
Dec.	29		Purchased a 12-month public liability insurance policy for$11,520. This policy protects the company against liability forinjuries and property damage caused by its equipment. However, thepolicy goes into effect on January 1, Year 2, and affords nocoverage for the injuries sustained by Kevin Davenport on December26.
Dec.	31		Received a bill from Universal Utilities for the month ofDecember, $840. Payment is due in 30 days.
Dec.	31		Equipment rental fees earned during the second half of Decemberamounted 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 ofthree months.
2. The annual interest rate on the note payable to Rent-It is 6percent.
3. The rental equipment is being depreciated by the straight-linemethod 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 feespaid in advance by McNamer Construction Company on December 8.
6. As of December 31, six days’ rent on the backhoe rented toMission 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 combinedfederal and state income tax rate of 40 percent of income beforeincome taxes (total revenue minus all expenses other than incometaxes). These taxes will be payable in Year 2.