Adam and Beth formed a corporation called Cyclo Equipment Rentals on December 1st, 2011. This new business is an equipment rental company and it could begin operations immediately by purchasing the assets. The corporation adjusts accounts monthly and closes entries annually on Dec 31st. The followings are the accounts that Cyclo had during the month of Dec, 2011
Transactions during December,2011
Dec 1 -Issued to Adam and Beth 20,000 shares of capital stock in exchange for a total of $200,000 cash.
Dec 1-Purchased for $240,000 all of the equipment formerly owned by Rent-It. Paid $140,000 cash and issued a one-year note payable for $100,000. The note, plus all 12-months of accrued interest, is due November 30,2012
Dec1-Paid $12,000 to Wilson 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 Hello Office Co.,$1000. Payment due in 30 days.
(These supplies are expected to last for several months; debit the Office Supplies asset account.)
Dec 8- Received $8000 cash as advance payment on equipment rental from McDonald Construction Company. ( credit: Unearned Rental Fees.)
Dec 12- Paid salaries for the first 2 weeks in Dec $5,200
Dec 15-Excluding the McDonald advance, equipment rental fees earned during the first 15 days of Dec amounted to $18000, of which $12000 was received in cash
Dec 17- Purchased on account from Strong Repair, Inc., $600 in parts needed to repair a rental tractor.
(Debit: Maintenance Expense) Payment is due in 10 days
Dec 23- Collected $2000 of the accounts receivable recorded on Dec 15
Dec 26- Rental a backhoe to ThreeM landscaping at a price of $250 perday, to be paid when the backhoe is returned. ThreeM landscaping expects to keep the backhoe for about 2 or 3 weeks.
Dec 26-Paid biweekly salaries $5200
Dec 27-paid the account payable to Strong Repair, Inc., $600
Dec 28- Declared a dividend of 10 cents per share, payable on January 15, 2012. ( 10 cents times the number of shres)
Dec 29- Cyclo Equipment Rentals was named, along with ThreeM Landscaping and Collier Construction, as a co-defendant in a $25000 lawsuit filed on behalf of Dan Paul. ThreeM Landscaping had left the rented backhoe in a fenced construction site owned by Collier Construction. After working hours on Dec 26, Dan Paul had climbed the fence to play on parked construction equipment. While playin on the backhoe, he fell and broke his arm. The extent of the company's legal and financial responsibility for this accident, if anym cannot be determined at this time. ( Note: This event does not require a journal entry at this time, but may require disclosure in note accompanying the statements.)
Dec 29- Purchased a 12-month public-liability insurance policy for $9,600. This policy protects the company against liability for injuries and property damage caused by its equipment. However, the policy goes into effect on January 1st, 2012, and affords no coverage for the injuries sustained by Dan Paul on Dec 26
Dec 31- received a bill from Altimate Utilities for the month of Dec $700. Payment is due in 30 days
Dec 31- Equipment rental fees earned during the second half of Dec amounted to $20000 of which $15600 was received in cash.
Data for Adjusting Entries
1. The advance payment of rent on Dec 1st coverd a period of 3 months
2. The annual interest rate on the note payable to Rent-It is 6%
3. The rental equipment is being depreciated by the straight-line method over a period of 8 years
4. Office supplies on hand at Dec 31 are estimated at $600
5. During Dec, the company earned $3700of the rental fees paid in advance by McDonald Construction Company on Dec 8th
6. As of Dec 31, six days'rent on the backhoe rented to ThreeM Lanscaping on Dec 26 has been earned
7. Salaries earned by employees since the last payroll date ( dec 26) amounted to $1400 at month-end
8. It is estimated that the company is subject to a combined federal and state income tax rate of 40% of income before income taxes ( total revenue minus all expenses other than income taxes). These taxes will be payable in 2012. ( you need to figure out Net Taxable income from the Income Statement to compute the Income Taxes Expense and Payable.)
Instructions
A. Perform the following steps of the accounting cycle for the month of Dec:
1. Journalize the Dec transactions. Do not record adjusting entries at this point
2. Post the Dec transactions to the appropriate ledger accounts
3. Prepare the unadjusted trial balance
4. Prepare the necessary adjusting entries to for Dec
5. Post the Dec adjusting entries to the appropriate ledger accounts
6. Complete the adjusting trial balance for the year ended Dec 31
B. Prepare an income statement and statement of retained earnings for the year ended Dec 31, and a balance sheet ( in report form) as of Dec 31