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5 to 6 hours
Strong
COMPREHENSIVE PROBLEM 1
Susquehanna Equipment Rentals
A mini-practice set illustrating the complete accounting cycle for a service-type
business. Includes computation of income taxes expense (as a percentage of
income before taxes) and an evaluation of solvency. Can be done as a group
assignment.
SUSQUEHANNA EQUIPMENT RENTALS
5 to 6 hours, Strong
Dec 1 Cash 240,000
Capital Stock 240,000
1 288,000
1 14,400
Cash 14,400
12 6,240
Cash 6,240
23 Cash 2,400
Accounts Receivable 2,400
26
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
a.
Year 1
General Journal
December Daily Transactions
Salaries Expense
(No entry required to record rental of backhoe.)
Owner invested cash in the business.
Prepaid Rent
Realty.
Paid three months' rent in advance to Shapiro
Rental Equipment
Collection of an accounts receivable.
Paid salaries for first two weeks in December.
from Earth Movers, Inc.; payment due in 10 days.
by McNamer Construction Company.
Dec 26 6,240
Cash 6,240
31 840
Accounts Payable 840
December Daily Transactions
Utilities Expense
Utilities for December; payment due in 30 days.
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
Salaries Expense
(continued)
a.
Year 1
Paid biweekly payroll.
General Journal
Dec 31 4,800
Prepaid Rent 4,800
31 3,000
3,000
31 480
Office Supplies 480
31 1,680
Salaries Payable 1,680
Rent Expense
Office Supplies Expense
To recognize rent expense for December.
Accumulated Depreciation: Rental Equip.
Depreciation for December ($288,000 ÷ 8 years x 1/12
Depreciation Expense
= $3,000).
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
(Adjusting Entries)
General Journal
(continued)
a.
Year 1
To record office supplies used during the month.
($1,200 - $720 = $480)
Salaries Expense
To record accrued salaries payable at month-end.
a.
Debit Credit Balance
Dec 1 240,000 240,000
1 168,000 72,000
1 14,400 57,600
8 9,600 67,200
Debit Credit Balance
Dec 15 7,200 7,200
Debit Credit Balance
Dec 1 14,400 14,400
31 4,800 9,600
Date
Explanation
Date
Explanation
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
Cash
(continued)
Date
Explanation
Prepaid Rent
Accounts Receivable
a.
Debit Credit Balance
Dec 1 288,000 288,000
Debit Credit Balance
Dec 1 120,000 120,000
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
Rental Equipment
Date
(continued)
Explanation
Explanation
Notes Payable
Date
a.
Debit Credit Balance
Dec 31 1,680 1,680
Debit Credit Balance
Dec 8 9,600 9,600
31 4,440 5,160
Date
Explanation
Unearned Rental Fees
Date
Explanation
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
Salaries Payable
(continued)
a. & d.
Debit Credit Balance
Dec 31 16,344 16,344
31 2,400 13,944
Debit Credit Balance
Dec 15 21,600 21,600
31 24,000 45,600
31 4,440 50,040
31 1,800 51,840
31 51,840 0
Explanation
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
Retained Earnings
Date
Income, Year 1
(continued)
To close
Explanation
Dividends
Rental Fees Earned
Date
a. & d.
Debit Credit Balance
Dec 17 720 720
30 720 0
Debit Credit Balance
Dec 31 4,800 4,800
31 4,800 0
Date
To close
Explanation
Rent Expense
Date
To close
Explanation
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
Maintenance Expense
(continued)
a. & d.
Debit Credit Balance
Dec 31 3,000 3,000
31 3,000 0
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
Depreciation Expense
(continued)
Date
To close
Explanation
SUSQUEHANNA EQUIPMENT RENTALS
Worksheet
December 31, Year 1
a.
Debit Credit Debit Credit Debit Credit Debit Credit
Balance sheet accounts :
Cash 78,000$ 78,000$ 78,000$
Accounts receivable 10,080 (f) 1,800$ 11,880 11,880
Prepaid rent 14,400 (a) 4,800$ 9,600 9,600
Unexpired insurance 11,520 11,520 11,520
Office supplies 1,200 (d) 480 720 720
Accum. Dep.: rental equip. (c) 3,000 3,000 3,000
Salaries payable (g) 1,680 1,680 1,680
Income taxes payable (h) 10,896 10,896 10,896
Rent expense (a) 4,800 4,800 4,800
Interest expense (b) 600 600 600
Depreciation expense (c) 3,000 3,000 3,000
Office supplies expense (d) 480 480 480
Income taxes expense (h) 10,896 10,896 10,896
27,696$ 27,696$ 437,616$ 437,616$ 35,496 51,840 402,120 385,776
Net income 16,344 16,344
Totals $ 51,840 $ 51,840 $ 402,120 $ 402,120
* Adjustments
Debit
Credit
Trial Balance
RENTALS (continued)
COMPREHENSIVE PROBLEM 1
Adjustments*
Adjusted Trial Balance
Income Statement
Balance Sheet
SUSQUEHANNA EQUIPMENT
b.
Rental fees earned 51,840$
$ 14,160
720
$0
16,344
$ 16,344
SUSQUEHANNA EQUIPMENT RENTALS
Statement of Retained Earnings
Subtotal
Retained earnings, December 1, Year 1
Net income
For the Year Ended December 31, Year 1
Income Statement
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
(continued)
SUSQUEHANNA EQUIPMENT RENTALS
Revenue:
For the Year Ended December 31, Year 1
Expenses
Salaries expense
Maintenance expense
b.
78,000$
120,000$
2,040
600
1,680
2,400
c.
Notes to the financial statements:
Dividends payable
Liabilities & Stockholders' Equity
Liabilities:
Note 1—Depreciation policies
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.
Assets
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
SUSQUEHANNA EQUIPMENT RENTALS
Balance Sheet
December 31, Year 1
(continued)
Cash
Notes payable
Accounts payable
Interest payable
Salaries payable
Dec 31 51,840
Income Summary 51,840
31 16,344
Retained Earnings 16,344
31 2,400
Dividends 2,400
e.
$ 78,000
11,880
9,600
11,520
720
Accounts receivable
Prepaid rent
Unexpired insurance
Office supplies
Cash
SUSQUEHANNA EQUIPMENT RENTALS
After-Closing Trial Balance
December 31, Year 1
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
(continued)
d.
Year 1
To close the revenue account.
(Closing Entries)
Rent Fees Earned
General Journal
Retained Earnings
To close the Dividends account.
To close the Income Summary account.
Income Summary
f.
g.
It does not appear that the company faces any immediate solvency problems. It did start
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
