A COMPREHENSIVE ACCOUNTING CYCLE PROBLEM - NEED ASAP! THANKYOU
On December 1, 2018, John and Maggie Driscoll formed Cape ClearIsland, LLC. They began operations using the followingaccounts:
Cash
Accounts Receivable
Prepaid Rent
Unexpired Insurance
Office Supplies
Rental Equipment
Accumulated Depreciation:
Rental Equipment
Notes Payable
Accounts Payable
Interest Payable
Salaries Payable
Dividends Payable
Unearned Rental Fees
Income Taxes Payable
Capital Stock
Retained Earnings
Dividends
Income Summary
Rental Fees Earned
Salaries Expense
Maintenance Expense
Utilities Expense
Rent Expense
Office Supplies Expense
Depreciation Expense
Interest Expense
Income Taxes Expense
The LLC performs adjusting entries monthly. Closing entries areperformed annually on December 31.
During December, the LLC entered into the followingtransactions:
Dec.1 Issued to John and MaggieDriscoll 20,000 shares of capital stock inexchange for a total of $200,000 cash.
Dec.1 Purchased for$240,000 the equipment formally owned by a competitor named Achill,LLP. Paid $140,000 cash and issued a one year note payable for$100,000. The note, plus all 12 months of accrued interest, are dueNovember 30, 2019.
Dec.1 Paid $12,000 to Corrigan Realty,LLP as three months’ advance rent on the rental yard and officeformerly occupied by Achill, LLP.
Dec.4 Purchased officesupplies on account from the Castlebar Office Company for $1,000.Payment due in 30 days. (These supplies are expected to last forseveral months.)
Dec.8 Received $8,000 cashas advance payment on equipment rental from McGinty ConstructionCompany.
Dec.12 Paid salaries for the first twoweeks in December of $5,200.
Dec.15 Excluding the McGinty advance,equipment rental fees earned during the first 15 days of Decemberamounted to $18,000, of which $12,000 was received in cash.
Dec.17 Purchased on account fromDonegal, LLP, $600 in parts needed to repair a rental tractor.Payment is due in 10 days.
Dec.23 Collected $2,000 of the accountsreceivable recorded on December 15.
Dec.26 Rented a backhoe to DeverLandscaping at a price of $250 per day, to be paid when the backhoeis returned. Dever Landscaping expects to keep the backhoe forabout two or three weeks.
Dec.26 Paid biweekly salaries, $5,200.
Dec.27 Paid the account payable to Donegal,LLP, $600.
Dec.28 Declared a dividend of 10 cents pershare, payable on January 15, 2019.
Dec.29 Cape Clear Island, LLC was named,along with Dever Landscaping and Westport Construction as aco-defendant in a $25,000 lawsuit filed. Dever Landscaping had leftthe rented backhoe in a fenced construction site owned by WestportConstruction. After working hours on December 26, kids had climbedthe fence to play on parked construction equipment. While playingon the backhoe, one fell and broke his arm. The extent of thecompany’s legal and financial responsibility for this accident, ifany, cannot be determined at this time.
Dec.29 Purchased a 12-month publicliability insurance policy for $9,600. This policy protects thecompany against liability for injuries and property damage causedby its equipment. However, the policy goes into effect on January1, 2019, and affords no coverage for the injuries sustained by thekids on December 26.
Dec.31 Received a bill from CorraunUtilities for the month of December for $700.Payment is due in 30 days.
Dec.31 Equipment rental fees earnedduring the second half of December amounted to $20,000, of which$15,600 was received in cash.
Data for Adjusting Entries:
- The advance payment of rent on December 1 covered a period ofthree months.
- The annual interest rate on the note payable to Achill, LLP is6 percent.
- The rental equipment is being depreciated by the straight-linemethod over a period of 8 years.
- Office supplies on hand at December 31 are estimated at$600.
- During December, the company earned $3,700 of the rental feespaid in advance by McGinty Construction Company on December 8.
- As of December 31, six days’ rent on the backhoe rented toDever Landscaping on December 26 has been earned.
- Salaries earned by employees since the last payroll date(December 26) amounted to $1,400 at month-end.
- It is estimated that the company is subject to a combinedfederal, state and local income tax rate of 45percent of income before income taxes (total revenue minusall expenses other than income taxes). These taxes will be payablein 2019.
Instructions:
- Perform the following steps of the accounting cycle for themonth of December:
- Record in the general journal the December transactions andpost to the appropriate ledger accounts.
- Prepare the unadjusted trial balance on a 10-column worksheetfor the year ended December 31. See example on page 134 (Exhibit3B.1) in our text book.
- Prepare the necessary adjusting entries for December.
- Post the December adjusting entries to the appropriate ledgeraccounts.
- Complete the 10-column worksheet for the year ended December31.
b. In professionalformat, prepare an Income Statement and Statement ofShareholders’ Equity for the year ended December 31, and a BalanceSheet as of December 31.
c. Prepare requiredfootnote disclosures to accompany the December 31 financialstatements. Your solution should include a separate footnoteaddressing each of the following areas: (1) depreciation policy,(2) maturity dates of major liabilities, and (3) potentialliability due to pending litigation. Look at the Facebookannual report’s footnotes posted to our Black Boardhomepage.
d. Prepare closingentries and post to ledger accounts.
e. Prepare an afterclosing trial balance as of December 31.
f. During December,this company’s cash balance has fallen from $200,000. Does itappear headed for insolvency in the near future? Explain yourreasoning.
g. Would it beethical for Maggie Driscoll to maintain the accounting records forthis company, or must they be maintained by someone who isindependent of the organization?
