Comprehensive Problem Instructions
1. You will find Comprehensive Problem #1 at the end of Chapter 5 in your text (after all of the exercises and problems)
2. Download the template provided for this assignment. Please note, you must use the templates provide. Do not create your own Excel sheets.
3. I’ve included a sheet to use, you will see different sheets (tabs) that need completing. Each sheet shows a different part of the problem you must complete.
4. When completing the problems you must show the Function used in Excel. Excel Functions are predefined formulas within Excel. In other words, you cannot just put the numeric answer in a cell. You must instruct Excel to do the specific computation you would like. This is required; otherwise, credit for your work will not be given. An example, the function =SUM(A1:A3, C1:C2, E2) will add the values of all cells.
5. Complete and submit your solution as one file attachment.
6. All Parts are to be completed using the provided Excel Template file In the Module
7. All supporting calculations are to be shown.
8. Make sure you save your work while completing this problem.
9. There are several parts to these comprehensive problems, so please allow enough time to complete it and review it before handing it in.
10. Complete and submit your solution as one file attachment.
11. All Parts are to be completed using the provided Excel Template file In the Module
12. All supporting calculations are to be shown.
13. Make sure you save your work while completing this problem.
14. There are several parts to these comprehensive problems, so please allow enough time to complete it and review it before handing it in.
Check Figures:
Please note the co
ect 'Trial Balance' is included on the provided Excel Template file in the Module. There should be eight separate adjusting entries.
Net income should be $16,344.
COMPREHENSIVE PROBLEM 1
Susquehanna Equipment Rentals
A COMPREHENSIVE ACCOUNTING CYCLE PROBLEM
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.
Cash XXXXXXXXXXIncome Taxes Payable
Accounts Receivable XXXXXXXXXXCapital Stock
Prepaid Rent XXXXXXXXXXRetained Earnings
Unexpired Insurance XXXXXXXXXXDividends
Office Supplies XXXXXXXXXXIncome Summary
Rental Equipment XXXXXXXXXXRental Fees Earned
Accumulated Depreciation: Salaries Expense
Rental Equipment XXXXXXXXXXMaintenance Expense
Notes Payable XXXXXXXXXXUtilities Expense
Accounts Payable XXXXXXXXXXRent Expense
Interest Payable Office Supplies Expense
Salaries Payable XXXXXXXXXXDepreciation Expense
Dividends Payable XXXXXXXXXXInterest Expense
Unearned Rental Fees XXXXXXXXXXIncome Taxes Expense
The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31. During December of its first year of operations, the corporation entered into the following transactions.
Dec. 1 Issued to John and Patty Driver 20,000 shares of capital stock in exchange for a total of $240,000 cash.
Dec. 1 Purchased for $288,000 all of the equipment formerly owned by Rent-It. Paid $168,000 cash and issued a 1-year note payable for $120,000. The note, plus all 12 months of accrued interest, are due November 30, Year 2.
Dec. 1 Paid $14,400 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., $1,200. Payment due in 30 days. (These supplies are expected to last for several months; debit the Office Supplies asset account.)
Dec. 8 Received $9,600 cash as advance payment on equipment rental from McNamer Construction Company. (Credit Unearned Rental Fees.)
Dec. 12 Paid salaries of $6,240 for the first two weeks in December.
Dec. 15 Excluding the McNamer advance, equipment rental fees earned during the first 15 days of December amounted to $21,600, of which $14,400 was received in cash.
Dec. 17 Purchased on account from Earth Movers, Inc., $720 in parts needed to perform basic maintenance on a rental tractor. Payment is due in 10 days.
Dec. 23 Collected $2,400 of the accounts receivable recorded on December 15.page 248
Dec. 26 Rented a backhoe to Mission Landscaping at a price of $300 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, $6,240.
Dec. 27 Paid the account payable to Earth Movers, Inc., $720.
Dec. 28 Declared a dividend of 12 cents per share, payable on January 15, Year 2.
Dec. 29 Susquehanna Equipment Rentals was named, along with Mission Landscaping and Collier Construction, as a co-defendant in a $30,000 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
oke 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 $11,520. 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, Year 2, 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, $840. Payment is due in 30 days.
Dec. 31 Equipment rental fees earned during the second half of December amounted to $24,000, of which $18,720 was received in cash.
Data for Adjusting Entries in Year 1
a. 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.
c. The rental equipment is being depreciated by the straight-line method over a period of eight years. Any salvage value at the end of its useful life is expected to be negligible and immaterial.
d. Office supplies on hand at December 31 are estimated at $720.
e. During December, the company earned $4,440 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 $1,680 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 Year 2.
Instructions
a. Perform the following steps of the accounting cycle for the month of December, Year 1.
1. Journalize the December transactions. Do not record adjusting entries at this point.
2. Post the December transactions to the appropriate ledger accounts.
3. Prepare the unadjusted trial balance columns of a 10-column worksheet for the year ended December 31.
4. Prepare the necessary adjusting entries on December 31.
5. Post the December adjusting entries to the appropriate ledger accounts.
6. Complete the 10-column worksheet for the year ended December 31.
B. Prepare an income statement and statement of retained earnings for the year ended December 31, and a balance sheet as of December 31, Year 1.
C. Prepare required disclosures to accompany the financial statements dated December 31, Year 1. Your disclosures should include separate write-ups addressing each of the following areas: (1) depreciation policy, (2) maturity dates of major liabilities, and (3) potential liability due to pending litigation.
D. Prepare closing entries and post them to ledger accounts.
E. Prepare an after-closing trial balance as of December 31, Year 1.
F. During December, the company’s cash balance fell from $240,000 to $78,000. Does this imply that the business is headed for insolvency in the near future? Explain your reasoning.
G. Would it be ethical for Patty Driver to maintain the accounting records for this company, or must they be maintained by someone who is independent of the organization?
CP1-Desc.
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
Susquehanna Equipment Rentals 5 to 6 hours
This comprehensive problem combines material from Chapters 3-5. It can be performed individually or as a group assignment. The problem is structured as a mini-practice set illustrating the entire accounting cycle of a service-type business. It requires students to record basic transactions and to prepare both adjusting and closing entries. It also requires the completion of worksheet composed of columns for the trial balance, adjustments, adjusted trial balance, income statement, and balance sheet. After preparing the company's financial statements and several footnote disclosures, students are asked to evaluate its solvency and to answer a series of open-ended questions. Strong
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CP1
5 to 6 hours, Strong COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
a.
General Journal
December Daily Transactions
Year 1
Dec 1
1
1
4
8
12
15
17
23
26
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CP1(p.2)
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
(continued)
a.
General Journal
December Daily Transactions
Year 1
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CP1(p.3)
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
(continued)
a.
General Journal
(Adjusting Entries)
Year 1
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CP1(p.4)
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
(continued)
a. Cash
Date Explanation Debit Credit Balance
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CP1(p.5)
COMPREHENSIVE PROBLEM 1
SUSQUEHANNA EQUIPMENT RENTALS
(continued)
a. Rental Equipment
Date Explanation Debit Credit Balance
Dec 1 288,000 288,000
Accumulated Depreciation: Rental Equipment
Date Explanation Debit Credit Balance
Dec 31 3,000 3,000
Notes Payable
Date Explanation Debit Credit Balance