I am having a hard time getting the answer to the last journal entry for DEC 31
ID: 2532804 • Letter: I
Question
I am having a hard time getting the answer to the last journal entry for DEC 31 for income taxes expense and income tax payable. HELP PLEASE. On December 1, 2015, 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:
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 John and Patty Driver 28,000 shares of capital stock in exchange for a total of $280,000 cash.
Dec. 1
Purchased for $268,800 all of the equipment formerly owned by Rent-It. Paid $135,000 cash and issued a one-year note payable for $133,800. The note, plus all 12-months of accrued interest, are due November 30, 2016.
Dec. 1
Paid $11,700 to Shapiro 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 Modern Office Co., $1,300. 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 McNamer Construction Company. (Credit Unearned Rental Fees.)
Dec. 12 Paid salaries for the first two weeks in December, $4,600.
Dec. 15
Excluding the McNamer 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 Earth Movers, Inc., $600 in parts needed to repair a rental tractor. (Debit an expense account.) Payment is due in 10 days.
Dec. 23 Collected $2,300 of the accounts receivable recorded on December 15.
Dec. 26
Rented a backhoe to Mission Landscaping at a price of $270 per day, to be paid when the backhoe is returned. Mission Landscaping expects to keep the backhoe for about two or three weeks.
Dec. 26 Paid biweekly salaries, $4,600.
Dec. 27 Paid the account payable to Earth Movers, Inc., $600.
Dec. 28 Declared a dividend of 10 cents per share, payable on January 15, 2016.
Dec. 29
Susquehanna Equipment Rentals was named, along with Mission Landscaping and Collier Construction, as a co-defendant in a $23,000 lawsuit filed on behalf of Kevin Davenport. Mission 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 $9,480. 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, 2016, and affords no coverage for the injuries sustained by Kevin Davenport on December 26.
Dec. 31
Received a bill from Universal Utilities for the month of December, $670. Payment is due in 30 days.
Dec. 31
Equipment rental fees earned during the second half of December amounted to $20,200, of which $16,200 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 Rent-It 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 $640.
e.
During December, the company earned $4,300 of the rental fees paid in advance by McNamer Construction Company on December 8.
f.
As of December 31, six days’ rent on the backhoe rented to Mission Landscaping on December 26 has been earned.
g.
Salaries earned by employees since the last payroll date (December 26) amounted to $1,400 at month-end.
h.
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 2016.
Journalize the December transactions. Do not record adjusting entries at this point
No Date General Journal Debit Credit
1 Dec.1 Cash 280,000
Capital stock 280,000
2 Dec.1 Rental equipment 268,800
Cash 135,000
Notes payable 133,800
3 Dec.1 Prepaid rent 11,700
Cash 11,700
4 Dec.4 Office supplies 1,300
Accounts payable 1,300
5 Dec.8 Cash 8,200
Unearned rental fees 8,200
6 Dec.12 Salaries expense 4,600
Cash 4,600
7 Dec.15 Cash 12,300
Accounts receivable 5,800
Rental fees earned 18,100
8 Dec.17 Maintenance expense 600
Accounts payable 600
9 Dec.23 Cash 2,300
Accounts receivable 2,300
10 Dec.26 No journal entry required
11 Dec.26 Salaries expense 4,600
Cash 4,600
12 Dec.27 Accounts payable 600
Cash 600
13 Dec.28 Dividends 2,800
Dividends payable 2,800
14 Dec.29 No journal entry required
15 Dec.29 Unexpired insurance 9,480
Cash 9,480
16 Dec.31 Utilities expense 670
Accounts payable 670
17 Dec.31 Cash 16,200
Accounts receivable 4,000
Rental fees earned 20,200
Prepare the necessary adjusting entries for December.
No Date General Journal Debit Credit
1 Dec.31 Rent expense 3,900
Prepaid rent 3,900
2 Dec.31 Interest expense 669
Interest payable 669
3 Dec.31 Depreciation expense 2,800
Accumulated depreciation: rental equipment 2,800
4 Dec.31 Office supplies expense 660
Office supplies 660
5 Dec.31 Unearned rental fees 4,300
Rental fees earned 4,300
6 Dec.31 Accounts receivable 1,620
Rental fees earned 1,620
7 Dec.31 Salaries expense 1,400
Salaries payable 1,400
8 Dec.31 Income taxes expense
Income taxes payable
Explanation / Answer
Income statement Revenue 44220 Less : Expenses Salaries expense 10600 Maintenance expense 600 Utilities expense 670 Rent expense 3900 Supplies expense 660 1620 Interest expense 669 Depreciation expense 2800 Total expenses 19899 Net Income 24321 Less : Income tax expense@40% 9728.4 Journal entry for Income taxes Income Tax Expense (Debit) 9728.4 Income Taxes payable (Credit) 9728.4
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