Question & Answer: On December 1, 2014, David and Sue Kilmore formed a corporation called ABC Rentals. The new corporation was abl…..

On December 1, 2014, David and Sue Kilmore formed a corporation called ABC Rentals. The new corporation was able to begin operations immediately by purchasing the assets and taking over the location of a previous rental company that was going out of business. The newly formed company 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. Closing entries are performed annually on December 31. During December, the corporation entered into the following transactions: Dec. 1 Issued to David and Sue Kilmore 22,000 shares of capital stock in exchange for a total of $220,000 cash. Dec. 1 Purchased for $201,600 all of the equipment formerly owned by the previous rental company. Paid $132,000 cash and issued a one-year note payable for $69,600. The note, plus all 12-months of accrued interest, are due November 30, 2015. Dec. 1 Paid $10,200 to Sumbeam Realty as three months’ advance rent on the rental yard and office formerly occupied by a previous rental company. Dec. 4 Purchased office supplies on account from Office Depot, $1,600. Payment due in 30 days. (These supplies are expected to last for several months; debit the Office Supplies asset account.) Dec. 8 Received $8,200 cash as advance payment on equipment rental from McAdams Construction Company. (Credit Unearned Rental Fees.) Dec. 12 Paid salaries for the first two weeks in December, $4,900. Dec. 15 Excluding the McAdams advance, equipment rental fees earned during the first 15 days of December amounted to $18,100, of which $12,300 was received in cash. Dec. 17 Purchased on account from Gravely, Iinc., $900 in parts needed to repair a rental tractor. (Debit an expense account.) 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 Granite Landscaping at a price of $290 per day, to be paid when the backhoe is returned. Granite Landscaping expects to keep the backhoe for about two or three weeks. Dec. 26 Paid biweekly salaries, $4,900. Dec. 27 Paid the account payable to Gravely, Iinc., $900. Dec. 28 Declared a dividend of 10 cents per share, payable on January 15, 2015. Dec. 29 ABC Rentals was named, along with Granite Landscaping and Collier Construction, as a co-defendant in a $28,000 lawsuit filed on behalf of Kevin Davenport. Granite 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 $8,640. 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, 2012, and affords no coverage for the injuries sustained by Kevin Davenport on December 26. Dec. 31 Received a bill from City of Stone for the month of December, $640. Payment is due in 30 days. Dec. 31 Equipment rental fees earned during the second half of December amounted to $20,300, of which $16,300 was received in cash. Data 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 Previous rental company 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 $680. e. During December, the company earned $4,200 of the rental fees paid in advance by McAdams Construction Company on December 8. f. As of December 31, six days’ rent on the backhoe rented to Granite Landscaping on December 26 has been earned. g. Salaries earned by employees since the last payroll date (December 26) amounted to $1,900 at month-end. h. It is estimated that the company is subject to a combined federal and state income tax rate of 30 percent of income before income taxes (total revenue minus all expenses other than income taxes). These taxes will be payable in 2015. Instructions 1. Journalize the December transactions. 2. Prepare an unadjusted trial balance. 3. Prepare the necessary adjusting entries for December. 4. Prepare an adjusted trial balance. 5. Prepare a balance sheet, an income statement, and a statement of retained earnings for the year ended December 31. 6. Prepare closing entries. 7. Prepare a post-closing trial balance. PLEASE DO ALL OF THE 7 QUESTIONS. NUMERATE EACH TABLE. FOR EXAMPLE NUMBER 7 IS PREPARE A POST CLOSING TRIAL BALANCE

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Part 1

Journalize the December transaction including, adjustment entries

Date Particulars Debit Credit
01-Dec Cash Dr. 220000
To Capital stock 220000
Issued to David and Sue Kilmore 22,000 shares of capital stock in exchange for a total of $220,000 cash
01-Dec Rental Equipments Dr. 201600
To cash 132000
To Note Payable 69600
Purchased for $201,600 all of the equipment formerly owned by the previous rental company. Paid $132,000 cash and issued a one-year note payable for $69,600.
01-Dec Prepaid Rent (3 months) Dr. 10200
To Cash 10200
Paid to Sumbeam Realty as three months’ advance rent on the rental yard and office formerly occupied by a previous rental company.
04-Dec Office Supplies Dr. 1600
To accounts payable 1600
Purchased office supplies on account from Office Depot, due in 30 Days
08-Dec Cash Dr. 8200
To Unearned Rental Fees 8200
advance payment on equipment rental from McAdams Construction Company
12-Dec Salaries Dr. 4900
To Cash 4900
Paid salaries for the first two weeks in December
15-Dec Cash Dr. 12300
Accounts Recievable Dr. 5800
To Rental Fees Earned 18100
equipment rental fees earned during the first 15 days of December amounted to $18,100, of which $12,300 was received in cash
17-Dec Rental Equipment Maintainence Expense Dr. 900
To accounts Payable 900
Purchased on account from Gravely, Iinc., due in 10 Days
23-Dec Cash Cr. 2200
To Accounts Recievables 2200
Collected $2,200 of the accounts receivable recorded on December 15.
26-Dec Salaries Dr. 4900
To Cash 4900
Paid biweekly salaries
27-Dec Accounts Payable Dr. 900
To Cash 900
Paid the account payable to Gravely, Iinc.,
28-Dec Dividend Dr. 2200
To Dividend payable 2200
Declared a dividend of 10 cents per share, payable on January 15
29-Dec Unexpired Insurance Dr. 8640
To cash 8640
Purchased a 12-month public-liability insurance policy for $8,640. This policy protects the company against liability for injuries and property damage caused by its eq
31-Dec Utilities Expenses Dr. 640
To accounts Payable 640
Received a bill from City of Stone for the month of December, $640. Payment is due in 30 days.
31-Dec Cash Dr. 16300
Accounts Recievable Dr. 4000
To Rental Fees Earned 20300
Equipment rental fees earned during the second half of December amounted to $20,300, of which $16,300 was received in cash.
Adjustment Entries
31-Dec Rent Expenses Dr. 3400
Pre Paid Rent 3400
Rent Charged for one month
31-Dec Interest Expense Dr. 348
Interest Payable 348
Interest Charged for One month
31-Dec Depreciation Dr. 25200
To Accumulated Depreciation 25200
Depreciation charged for first year
31-Dec Office Supplies Expense Dr. 920
To office Supplies 920
Office Supplies consumed
31-Dec Unearned Rental Fees Dr. 4200
To Rental fees Earned 4200
the company earned $4,200 of the rental fees paid in advance by McAdams Construction Company
31-Dec Accounts Recievables Dr. 1740
To Rental Fees Earned 1740
six days’ rent on the backhoe rented to Granite Landscaping on December 26 has been earned
31-Dec Salaries Dr. 1900
To Salaries Payable 1900
Salaries earned by employees since the last payroll date (December 26) amounted to $1,900 at month-end

Part 2)

Unadjusted Trail Balance
Particulars Debit Credit
Capital Stock 220000
Rental Equipment 201600
Note Payables 69600
Prepaid Rent 10200
Office Supplies 1600
Unearned Rental Fees 8200
Salaries Expense 9800
Accounts Recievables 7600
Rental Fees Earned 38400
Rental Equipment Maintainence Expense Dr. 900
Accounts Payable 2240
Dividend 2200
Dividend Payable 2200
Unexpired Insurance 8640
Utilities Expenses 640
Cash 97460
Total 340640 340640

Part 3) I have included this one in part 1

Part 4)

Adjusted Trail Balance
Particulars Debit Credit
Capital Stock 220000
Rental Equipment 201600
Note Payables 69600
Prepaid Rent 6800
Office Supplies 680
Unearned Rental Fees 4000
Salaries Expense 11700
Accounts Recievables 9340
Rental Fees Earned 44340
Rental Equipment Maintainence Expense Dr. 900
Accounts Payable 2240
Dividend 2200
Dividend Payable 2200
Unexpired Insurance 8640
Utilities Expenses 640
Cash 97460
Rent Expenses 3400
Interest Expenses 348
Interest payable 348
Depreciation Expense 2100
Accumulated Depreciation 2100
Office Supplies Expenses 920
Salaries Payable 1900
Total 346728 346728

Part 5)

Income Statement for period of December 2014
Rental Fees Earned 44340
Expenses :
Salaries 11700
Rental Equipment Maintainence Expense Dr. 900
Utilities Expenses 640
Rent Expenses 3400
Interest Expenses 348
Depreciation 2100
Office supplies Expenses 920
Total Expenses 20008
Income Before Tax and Dividend 24332
Less: Taxes 7299.6
Income After Tax 17032.4
Dividend 2200
Net Income After Dividend 14832.4
Balance Sheet as on 31 Dec 2014
Assets Amount Liabilites Amount
Rental Equipment 201600 Notes Payable 69600
Accumulated Depreciation -2100 Income Tax Payable 7299.6
Prepaid Rent 6800 Accounts Payable 2240
Office Supplies 680 Unearned Rental Fees 4000
Accounts Recievables 9340 Dividend Payable 2200
Unexpired Insurance 8640 Interest payable 348
Cash 97460 Salaries Payable 1900
Capital Stock 220000
Retained Earning 14832.4
Total 322420 Total 322420

Note To accounts

1)   Dec. 29 ABC Rentals was named, along with Granite Landscaping and Collier Construction, as a co-defendant in a $28,000 lawsuit filed on behalf of Kevin Davenport. Granite 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.

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