Accounting Cycle Problem

Accounting Cycle Problem Question No.1.1 On September 1, 20---, Anthony Ferrara organized a business called Tony’s Rentals for the purpose of operating an equipment rental yard. The new business was able to begin operations immediately by purchasing the assets and taking over the location of the Rent It, an equipment rental company that was going out of business. Tony’s Rentals uses the following chart of accounts. Cash 10 Capital 321 Accounts Receivables 20 Drawings 234 Prepaid Rent 21 Income Summary 125 Unexpired Insurance 23 Rental Fees Earned 153 Office Supplies 25 Salaries Expense 163 Rental Expenses 65 Maintenance Expense 162 Accumulated Depreciation-Rental Equipment 76 Utilities Expense 124 Notes Payable 87 Rent Expense 121 Accounts Payable 98 Office Supplies Expense 111 Interest Payable 09 Depreciation-Rental Equipment 231 Salaries Payable 12 Interest Expense 222 Unearned Rental Fees 43 Company closes its accounts and prepares the financial statements at the end of each month. During September, the company entered into the following transactions. Sep 1:

Anthony Ferrara deposited $100000 cash in a bank account in the name of the business, Tony’s Rentals.

Sep 1:

Paid $9000 to Shapiro Reality as three months advance rent on the rental yard and office formally occupied by Rent It.

Sep 1:

Purchased $180000 all the equipment formally owned by Rent-It. It paid $70000 cash and issued a note for $110000 on which interest is payable at an annual rate of 9%.

Sep 4:

Purchased office supplies on account from Modern Office Co., for $1630. Payment is due in 30 days. Company expects to keep these supplies in the store for several months.

Sep 8:

Received $10000 from McBryan Company as an advance payment of the rental equipment.

Sep 12: Paid salaries for the first two weeks $3600. Sep 15: Excluding the McBryan advance, equipment rental fees earned during the first two weeks of September were $6100 of which $5300 were received in cash. Sep 17: Purchased on account from Earth Movers Inc. $340 in parts needed to repair a truck. Payment is due in 30 days. Sep 23: Collected $210 from the receivables recorded on September 15. Sep 25: Rented a backhoe to the Mission Landscaping at a price of $100 per day to be paid when the BackHoe is returned. Mission Landscaping expects to keep the machinery for about two to three weeks. Sep 26: Paid Second biweekly salaries $3600. Sep 27: Paid the account payable to Earth Movers Inc., $340.

Sep 28: Anthony Ferrara withdraws $2000 from the business to pay the rent of his personal residence. Sep 29: Purchased a 12-month public liability insurance policy for $2700. Insurance policy will start its coverage from the October 1. Sep 30: Received a bill from Universal Utilities for the month of September, $270. Payment is due in 30 days. Sep 30: Equipment rental fees earned and received in cash during the second half of the September are $8450. Data for Adjusting Entries: a. b. c. d. e. f.

The advance payment of the rent on September 1 covered a period of three months. Interest accrued on the notes payable to Rent-It amounted to $825 at September 30. The rental equipment is being depreciated by straight line method over a period of 10 years. During September, the Company earned $4840 of the rental fees paid by the McBryan in advance. As of September, Tony’s Rental has five days rent on the backhoe rented to the Mission Landscaping. Salaries earned by the employees after the second half were $900 at the month end.

Instructions: 1. 2. 3. 4. 5. 6.

Journalize the above transaction. Post to the ledger accounts. Prepare a 10 column worksheet for the month of September. Prepare an Income Statement and a Balance Sheet for the month of September. Prepare adjusting and closing entries required for the month of September. Prepare an after closing trial balance as on September 30. ----- (End) -----