1

Required information
Skip to question
[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 Share Capital

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. Closing entries are performed annually on
December 31. During December of its first year of operations, the corporation entered into the
following transactions.

Dec.1 Issued to John and Patty Driver 30,000 new shares in exchange for a total of $300,000
cash.
Dec.1 Purchased for $259,200 all of the equipment formerly owned by Rent-It. Paid $139,000
cash and issued a 1-year note payable for $120,200. The note, plus all 12 months of
accrued interest, are due November 30, Year 2.
Dec.1 Paid $9,600 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., $1,100. Payment due in 30
days. (These supplies are expected to last for several months; debit the Office Supplies
asset account.)
Dec.8 Received $8,100 cash as advance payment on equipment rental from McNamer
 Construction Company. (Credit Unearned Rental Fees.)
Dec.12 Paid salaries of $5,200 for the first two weeks in December.
Dec.15 Excluding the McNamer advance, equipment rental fees earned during the first 15 days
of December amounted to $19,000, of which $12,200 was received in cash.
Dec.17 Purchased on account from Earth Movers, Inc., $1,000 in parts needed to perform basic
maintenance on a rental tractor. Payment is due in 10 days.
Dec.23 Collected $2,200 of the accounts receivable recorded on December 15.
Dec.26 Rented a backhoe to Mission Landscaping at a price of $270 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., $1,000.
Dec.28 Declared a dividend of 10 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 $29,000 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 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 liability insurance policy for $9,000. 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 month of December, $600. Payment is due
in 30 days.
Dec.31 Equipment rental fees earned during the second half of December amounted to $20,400,
of which $16,600 was received in cash.

Data for Adjusting Entries in Year 1

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. Any salvage value at the end of its useful life is expected to be negligible and
immaterial.
d. Office supplies on hand at December 31 are estimated at $650.
e. During December, the company earned $4,300 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
$2,000 at month-end.
 h. It is estimated that the company is subject to an income tax rate of 30 percent of profit
before income taxes (total revenue minus all expenses other than income taxes). These
taxes will be payable in Year 2.
1-a. Journalize the December transactions. Do not record adjusting entries at this point.
1-b. Prepare the necessary adjusting entries for December.
1-c. Prepare closing entries and post to ledger accounts.
Complete this question by entering your answers in the tabs below.
 Req 1A
 Req 1B
 Req 1C
Journalize the December transactions. Do not record adjusting entries at this point. (If no entry is
required for a transaction/event, select "No journal entry required" in the first account field.)
No Date General Journal Debit Credit
1 Dec. 1 Cash 300,000
Share capital 300,00

2 Dec. 1 Rental equipment 259,200

Cash 139,00
Notes payable 120,20

3 Dec. 1 Prepaid rent 9,600

Cash 9,600

4 Dec. 4 Office supplies 1,100

Accounts payable 1,100

5 Dec. 8 Cash 8,100

Unearned rental fees 8,100

6 Dec. 12 Salaries expense 5,200

Cash 5,200

7 Dec. 15 Cash 12,200

Accounts receivable 6,800
Rental fees earned 19,000

8 Dec. 17 Maintenance expense 1,000

Accounts payable 1,000

9 Dec. 23 Cash 2,200

Accounts receivable 2,200

10 Dec. 26 No journal entry required

11 Dec. 26 Salaries expense 5,200

Cash 5,200

12 Dec. 27 Accounts payable 1,000

Cash 1,000

13 Dec. 28 Dividends 3,000

Dividends payable 3,000
14 Dec. 29 No journal entry required

15 Dec. 29 Unexpired insurance 9,000

Cash 9,000

16 Dec. 31 Utilities expense 600

Accounts payable 600

17 Dec. 31 Cash 16,600

Accounts receivable 3,800
Rental fees earned 20,400

 Prepare the necessary adjusting entries for December. (If no entry is

required for a transaction/event, select "No journal entry required" in the
first account field. Do not round intermediate calculations. Round your final
answers to the nearest whole dollar.)

 No Date General Journal Debit Credit
No Date General Journal Debit Credit
1 Dec. 31 Rent expense 3,200
1 Dec. 31Prepaid rent
Rental fees earned 43,700 3,200
Income summary 43,700

2 Dec. 31 Interest expense 601

2 Dec. 31Interest payable
Income summary 28,262 601
Salaries expense 12,400

3 Rent
Dec. 31 Depreciation expense
expense 3,200
2,700
Interest
Accumulated expense
depreciation: rental equipment 601 2,700
Depreciation expense 2,700

4 Officeexpense
Dec. 31 Office supplies supplies expense 450
450
Maintenance expense
Office supplies 1,000 450
Utilities expense 600

5 Incomefees
Dec. 31 Unearned rental taxes expense 7,311
4,300
Rental fees earned 4,300
3 Dec. 31 Income summary 18,738

6 Retained earnings
Dec. 31 Accounts receivable 18,738
1,620
Rental fees earned 1,620
4 Dec. 31 Retained earnings 3,000

7 Dividends
Dec. 31 Salaries expense 3,000
2,000
Salaries payable 2,000

8 Dec. 31 Income taxes expense 7,311

Income taxes payable 7,311

Prepare closing entries and post to ledger accounts. (If no entry is required for a
transaction/event, select "No journal entry required" in the first account field. Do not round
intermediate calculations.)