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ACCT 217 Lecture Notes - Lecture 3: Accounts Receivable, Retained Earnings

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School
University of Calgary
Department
Accounting
Course
ACCT 217
Professor
ANUP

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Document Summary

If it goes down, it"s a credit: liabilities. Credit is unearned revenue for an airline that has not provided their service yet: from the airline"s perspective, earning revenue. Easiest possible way: cash comes in - revenue, expenses - cash goes out. Cash does not matter in accrual accounting- does not matter when you receive the cash: only when services are performed or consumed, divided economic life of company into small segments, monthly reporting. Accrued revenues are accounts receivable but have not been billey yet. If it is not written, assume it"s annual: nov 1, dr - unearned revenue , cr-cash , december 15, dr -accrued revenues aka a/r . Income summary: you do a debit transaction of so it closes --> Credit transaction in income summary: closing expense--> balance of , do a left/credit transaction of so the final balance is sh, then a right hand/debit transaction of .

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Related Questions

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 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 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 for the first two weeks in December, $6,240.
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 repair a rental tractor. (Debit an expense account.) Payment is due in 10 days.
Dec. 23 Collected $2,400 of the accounts receivable recorded on December 15.
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 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 $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

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

Date Particulars Debit Credit
Dec 1 Cash A/c Dr. 240,000
To Capital Stock A/c 240,000
Dec 1 Rental Equipment A/c Dr. 288,000
To Cash A/c 168,000
To Notes Payable 120,000
Dec 1 Rent Expense A/c Dr. 14,400
To Cash A/c 14,400
Dec 4 Office Supplies A/c Dr. 1,200
To Accounts Payable A/c 1,200
Dec 8 Cash A/c Dr. 9,600
To Unearned Rental Fees A/c 9,600
Dec 12 Salaries Expense A/c 6,240
To Cash A/c 6,240
Dec 15 Cash A/c Dr. 14,400
Accounts Receivable A/c Dr. 7,200
To Rental Fees Earned 21,600
Dec 17 Maintenance Expense A/c Dr. 720
To Accounts Payable 720
Dec 23 Cash A/c Dr. 2,400
To Accounts Receivable 2,400
Dec 26 Salaries Expense A/c Dr 6,240
To Cash A/c 6,240
Dec 27 Accounts Payable A/c Dr. 720
To Cash A/c 720
Dec 28 Retained Earnings A/c Dr. 2,400
To Dividend Payable A/c 2,400
Dec 29 No entry is required as this is a contingent liability
Dec 29 Unexpired Insurance A/c Dr. 11,520
To Cash A/c 11,520
Dec 31 Utilities Expense A/c Dr. 840
To Accounts Payable 840
Dec 31 Cash A/c Dr 18,720
Accounts Receivable A/c Dr. 5,280
To Rental Fees Earned 24,000

Adjustment Entries:

Date Particulars Debit Credit
Dec 31 Prepaid Rent A/c Dr. 9,600
To Rent Expense A/c 9,600
Dec 31 Interest Expense A/c Dr. 600
To Interest Payable 600
Dec 31 Depreciation Expense A/c Dr. 3,000
To Accumulated Depreciation: Rental Equipment 3,000
Dec 31 Office Supplies Expense A/c Dr 480
To Office Supplies A/c 480
Dec 31 Unearned Rental Fees A/c Dr. 4,440
To Rental Fees Earned 4,440
Dec 31 Accounts Receivable A/c Dr. 1,800
To Rental Fees Earned 1,800
Dec 31 Salaries Expense A/c Dr. 1,680
To Salaries Payable 1,680
Dec 31 Income Tax A/c Dr. 10,896
To Income Tax Payable 10,896

Please record the entry to close revenue earned to income summary, close all expense accounts to income summary, record the entry to transfer net income earned in 2015 to the retained earnings account, and Record the entry to transfer dividends declared in 2015 to the retained earnings account

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 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, are due November 30, 2016.
Dec. 1

Paid $12,000 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., $1,000. Payment due in 30 days. (These supplies are expected to last for several months; debit the Office Supplies asset account.)
Dec. 8

Received $8,000 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, $5,200.
Dec. 15

Excluding the McNamer advance, equipment rental fees earned during the first 15 days of December amounted to $18,000, of which $12,000 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 $2,000 of the accounts receivable recorded on December 15.
Dec. 26

Rented a backhoe to Mission Landscaping at a price of $250 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, $5,200.
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 $25,000 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 $9,600. This policy protects the company against liability for injuries and property damage caused by its equipment. However, the policy goes into effect on January 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, $700. Payment is due in 30 days.
Dec. 31

Equipment rental fees earned during the second half of December amounted to $20,000, of which $15,600 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 $600.
e.

During December, the company earned $3,700 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.