SUSQUEHANNA EQUIPMENT RENTALS
Worksheet
December 31, 2015
a.
Debit Credit Debit Credit Debit Credit Debit Credit
Balance sheet accounts :
C
ash 65,000
$
65,000
$
65,000
$
Accounts receivable 8,400 (f) 1,500
$
9,900 9,900
Prepaid rent 12,000 (a) 4,000
$
8,000 8,000
Unexpired insurance 9,600 9,600 9,600
Off
ice supplies 1,000 (d) 400 600 600
Rental equipment 240,000 240,000 240,000
Notes payable 100,000
$
100,000
$
100,000
$
Accounts payable 1,700 1,700 1,700
C
alaries payable (g) 1,400 1,400 1,400
Income taxes payable (h) 9,080 9,080 9,080
Income statement accounts:
Rental
f
ees earned 38,000 (e) 3,700 43,200 43,200
$
(f) 1,500
S
alaries expense 10,400 (g) 1,400 11,800 11,800
$
M
a
i
n
t
enance expense 600 600 600
Utiliti
es expense 700 700 700
349,700$ 349,700$
R
en
t
expense (a) 4
,
000 4,000 4
,
000
I
n
t
eres
t
expense (b) 500 500 500
D
,
,
Offi
I
* Adjustments
Debit Credit
Trial Balance
RENTALS (continued)
COMPREHENSIVE PROBLEM 1
Adjustments* Adjusted Trial Balance Income Statement Balance Sheet
SUSQUEHANNA EQUIPMENT
b.
Rental fees earned 43,200$
$ 11,800
600
700
4,000
400
$0
2,000
$ 11,620
SUSQUEHANNA EQUIPMENT RENTALS
Statement of Retained Earnings
Retained earnin
g
s, December 31, 2015
Less: Dividends
Retained earnin
g
s, December 1, 2015
For the Year Ended December 31, 2015
Income Statement
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
(continued)
SUSQUEHANNA EQUIPMENT RENTALS
Revenue:
For the Year Ended December 31, 2015
Office supplies expense
Expenses
Salaries expense
Maintenance expense
Utilities expense
Rent expense
b.
65,000$
9,900
8,000
9,600 600
240,000
2,500 237,500
1,400
2,000
4,300
9,080
118,980
$
T
$
c. Notes to the financial statements:
Prepaid rent
Unexpired insurance
Office supplies
Less: Accumulated depreciation
Rental equipment
Dividends payable
Unearned rental fees
Income taxes payable
Retained earnings
Note 3—Pending litigation
Note 1—Depreciation policies
The Company has been named as a co-defendant in a $25,000 personal injury lawsuit. The
extent of legal and financial responsibility, if any, cannot be determined at this time.
Note 2—Maturity dates of liabilities
Depreciation expense in the financial statements is computed by the straight-line method. The
estimated useful life of the rental equipment is 8 years.
Stockholders’ equity:
Assets
Accounts Receivable
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
SUSQUEHANNA EQUIPMENT RENTALS
Balance Sheet
December 31, 2015
(continued)
Cash
Interest payable
Salaries payable
Total liabilities
Dec 31 43
,
200
Income Summar
y
43
,
200
31 29
,
580
Salaries Ex
p
ense 11
,
800
31 13
,
620
Retained Earnin
g
s13
,
620
31 2
,
000
,
e.
$ 65,000
9,900
8,000
9,600
600
Accounts receivable
Prepaid rent
Unexpired insurance
Office supplies
Cash
SUSQUEHANNA EQUIPMENT RENTALS
After-Closing Trial Balance
December 31, 2015
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
Income Summar
y
(
cont
i
nue
d)
d.
2015
To close the revenue account.
(Closing Entries)
Rent Fees Earned
General Journal
Retained Earnin
g
s
To close the Income Summar
y
account.
Income Summar
y
p
f.
g.
It does not appear that the company faces any immediate solvency problems. It did start with
$200,000 cash, but in its first transaction the company spent $140,000 on equipment, leaving
only $60,000 cash to begin operations. This amount had increased to $65,000 by the end of
December. Thus, during its first month of operations, the business was able to generate
$5,000 of positive cash flow from operations.
Likewise, its current ratio is only 0.78:1 ($93,100 of current assets divided by $118,980 of
current liabilities). However, if the business can continue to generate at least $5,000 of
positive operating cash flows each month, remaining solvent should not pose a serious issue.
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
(concluded)
There is nothing at all unethical about Patty Driver (a founding stockholder) maintaining the
accounting records for Susquehanna Equipment Rentals. In most businesses, the accounting
records are maintained either by owners or employees, none of whom are “independent” of
the organization.