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[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. Capital 3tock Retained Earnings Cash Accounts Receivable Prepaid Rent Unexpired Insurance Office SuPplies Rental Equipment Acqumulated Depreciation: Rental Equipment Notes Payable Accounts Payable Interest Payable Salaries Payable Dividends Payable Unearned Rental Feea Income Taxea Payable Dividenda Income Summary Rental Fees Earned Salaries Expense Maintenance Expense Utilities Expense Rent Expense office Supplies Expense Depreciation Expense Interest Expense 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. Dea. 1 Issued to John and Patty Driver 20, 000 shares of capital stock in exchange for a total of $240,000 cash. 1 Purchased for $288, 000 all of the equipment formerly owned by Rent-It. Paid $168,000 caah and issued a 1-year note payable for $120,000. The note, plus al1 12 montha of acerued interest, are due November 30, Year 2. 1 Paid $14, 400 to Shapiro Realty as three months advance rent on the rental yard and office formerly occupied by Rent-It. 4 Purchased oftice supplies on account from Modern office Co.. 1,200. Payment due in 30 dava, (Theae aupplien are expeated to laat for several montha: debit the office Supplies asset account.) Dec Dec. Dec Dec. 8 Received $9,600 cash as advance payment on equipment rental frcm MeNamer Construation Company. (Credit Unearned Rental Fees.) Dec.12 Paid salaries tor the first two weeks in December, $6,240- Dec.15 Excluding the Malamer advance, equipment rental fees earned during the first 15 davs of December amoanted to $21, 600, of which $14,400 was received in cash. Dec.17 Purghaaed on account from Earth Movers, Ina., $720 in parts needed to repair a rental tractor. (Debit an expense account.) Payment i8 due in 10 days. Dec.23 Co1lected 02,400 of the accounte receivable recorded on December 15, Dec.26 Rented a backhoe to Miaaion Landscaping at a price of $300 per day, to be paid when the backhoe is returned. Miaaion Landacaping expects to keep the backhoe for about two or three weeks. Dec.26 Paid biveekly salariea, $6,2e0 Deg.27 Faid the agcount pavehle to Earth Movezs, Inc.4 $720. Dec. 20 Declared a diridend of 12 cents per share, payable on January 15, Year 2. Dec.29 Suaquehanna Equipment Rentals vas named, along with Miasion Landacaping and Collier Construction, as endefendane sn a sn 000 1avent, FTed nn hehale of Mewtn Darennors Mi n Tandenaninn had omprehensive Assignment 2 Saved Dec.17 Purchased on account from Earth Movers, Inc., $720 in parta 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 Landacaping at a price of $300 per day, to be paid when the backhoe is returned. Mission Landacaping expects to keep the backhoe for about two or three weeks. Dec.26 Paid biveekly salaries, $6,240. Dec.27 Paid the account payable to Earth Movers, Inc., $720. Dec.28 Declared a dividend of 12 cents per share, pavable 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. Hission Landscaping had left the rented backhoe in a fenced construction aite owned by Collier Construction. After working hours on December 26, Davenport had climbed the fence to play on parked conatruction equipment. While playing on the backhoe, he fell and broke his arm. Thee 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 liab1lity inaurance policy for $11,520. This policy protects the company against 1iability 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. D Dec.31 Received a bill from Universal Utilities for the month of December, 6840. 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 caah. 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 Prepare an income statement for the year ended December 31 SUSQUEHANNA EQUIPMENT RENTALS Income Statement For the Year Ended December 31, Year 1 on December 8 f. As of December 31, six days' rent on the backhoe rented to Missio g.Salaries earned by employees since the last payroll date (Decemb h. It is estimated that the company is subject to a combined federal a before income taxes (total revenue minus all expenses other than in Prepare a statement of retained earnings for the year ended December 31. SUSQUEHANNA EQUIPMENT RENTALS Statement of Retained Earnings For the Year Ended December 31, Year 1 Retained earnings, December 1, Year 1 Retained earnings, December 31. Year 1 of wh. 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-lt 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 Com on December 8 f. As of December 31, six days' rent on the backhoe rented to Mission Landscaping on December 26 has been earne 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 Yea. Prepare a balance sheet (in report form) as of December 31. (Amounts to be deducted should be indicated by a minus sign.) SUSQUEHANNA EQUIPMENT RENTAL S 3 Ne

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