On December 1, Year 1, John and Patty Driver formed a corporation called Susqueh

Question

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.

The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31. During December, the corporation entered into the following transactions.

Data for Adjusting Entries

The advance payment of rent on December 1 covered a period of three months.

The annual interest rate on the note payable to Rent-It is 6 percent.

The rental equipment is being depreciated by the straight-line method over a period of eight years.

Office supplies on hand at December 31 are estimated at $720.

During December, the company earned $4,440 of the rental fees paid in advance by McNamer Construction Company on December 8.

As of December 31, six days’ rent on the backhoe rented to Mission Landscaping on December 26 has been earned.

Salaries earned by employees since the last payroll date (December 26) amounted to $1,680 at month-end.

It is estimated that the company is subject to a combined federal and state income tax rate of 40 percent of income before income taxes (total revenue minus all expenses other than income taxes). These taxes will be payable in Year 2.

Prepare a statement of retained earnings for the year ended December 31.

Journal Entries

Adjustment Entries:

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

Explanation / Answer

Income statement Rental fees earned (21600+24000+4440+1800) 51840 Less: expenses Sa;laries expenses (6240+6240+1680) 14160 Utilities expenses 840 Insurance expenses 14400 Rent Expenses (14400/3*1) 4800 Depreciation expenses 3000 Mait. Expenses 720 office supplies expenses 480 Total operating expenses 38400 NOI 13440 Interest expenses 600 12840 Income atx expense (40%) 5136 Net Income 7704 Statement Of retained eranings Opening Balance 0 Add: net Income 7704 7704 Less: dividend 2400 Ending balance 5304 As per the journal entrie sprovided O have made the retained eranings If any doubt please comment

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