COMPREHENSIVE PROBLEM 1Mama & Papa's Gardening Center, Inc.On December 1, 2012, Jo Shmo and Frank Shmo formed a corporation called Mama &Papa's Gardening Center, Inc. The new corporation was able to begin operationsimmediately because they purchased an already existing gardening business. The newlyformed company uses the following accounts:CashAccounts ReceivablePrepaid RentUnexpired InsuranceOffice SuppliesRental EquipmentAccumulated Depreciation:Rental EquipmentNotes PayableAccounts PayableInterest PayableSalaries PayableDividends PayableUnearned Rental FeesIncome Taxes PayableCapital StockRetained EarningsDividendsIncome SummaryRental Fees EarnedSalaries ExpenseMaintenance ExpenseUtilities ExpenseRent ExpenseOffice Supplies ExpenseDepreciation ExpenseInterest ExpenseIncome Taxes ExpenseThe corporation performs adjusting entries monthly. Closing entries are performedannually on December 31 of every year. During the month of December 2012, thecorporation entered into the following transactions:Dec. 1 Issued to Jo and Frank Shmo 30,000 shares of capital stock in exchange for atotal of $400,000 cash.Dec. 1 Purchased rental equipment from Smith Rentals, Inc. for the business for$300,000 by paying $100,000 cash and issued a one-year note payable for theremainder of the balance. The note, plus all 12-month of accrued interest, aredue November 30, 1013.Dec. 1 Paid $15,000 to Smith Realty as three months' advance rent on the rental yardDec. 5 Purchased office supplies on account from a local supplies store. The suppliescost $1,000 and payment is due in 30 days. These supplies are expected to lastseveral months - debit the Office Supplies asset account.Dec. 8 Received $10,000 cash as an advance payment for equipment rentals from AlexisConstruction Company. (Credit Unearned Rental Fees)Dec.### Paid salaries for the first two weeks in December, $8,500.Dec.### Excluding the advance received on December 8th, equipment rental fees earnedduring the first 15 days of December amounted to $19,000, of which $15,000was received in cash.Dec. 17 Purchased on account from Dirt Movers Inc. $800 in parts needed to repair arental tractor. (Debit an expense account.) Payment is due in 2 weeks.Dec.### Collected $2,000 of the accounts receivable recorded on December 15th.Dec.### Rented a backhoe to Levy Landscaping at a price of $300 per day, to be paidwhen the backhoe is returned. Levy Landscaping expects to keep the backhoefor about 2-3 weeks.Dec.###Dec. 27Dec.###Dec.###Paid biweekly salaries, $8,500.Paid the account payable to Dirt Movers Inc., $800.Declared a cash dividend of 20 cents per share, payable on January 20, 2013.Mama & Papa's Gardening Center Inc., along with Levy Landscaping, werenamed as co-defendant in a $40,000 lawsuit filed on behalf of ChristopherRobin. Levy Landscaping had left the rented backhoe on their fenced inproperty. Christopher Robin, a the son of an employee at Levy Landscaping wasat work with his father and accidently fell and broke his arm as he tripped overthe backhoe. The extent of the company's legal and financial responsibility forthis accident, if any, cannot be determined at this time. (NOTE: This event doesnot require a journal entry at this time, but may require disclosure in the notesaccompanying the statements.)Dec.### Purchased a 12-month liability insurance policy for $12,000. This policy protectsthe company against liability for injuries and property damage caused by itsequipment. However, the policy goes into effect on January 1, 2013 and offersto protection against the claim filed for Christopher Robin.Dec.### Received a bill from the utility company for the month of December, payable in30 days, $750.Dec.### Equipment rental fees earned during the second half of December 2012amounted to $ 24,000, of which $18,500 was received in cash.Data for Adjusting Entriesa.b.c.d.e.The advance payment of rent on December 1 covered a period of 3 months.The annual interest rate on the note payable to Smith Rentals, Inc., is 9 percent.The rental equipment is being depreciated using the straight-line method over a period of ten years.Office supplies on hand on December 31st amounted to $400.During the month of December, the company earned $2,650 of the rental fees paid in advance by AlexisConstruction Company.As of December 31, six days' rent on the backhoe rented to Levy Landscaping on December 26th has beenf. earned.Salaries earned by employees since the last payroll period (December 26th) amounted to 3,250 at monthg. end.It is estimated that the company is subject to a combined federal and state income tax rate of 40% of incomebefore income taxes (total revenue minus all expenses other than income taxes). These taxes will be payablethe following year.h.a. Perform the following steps of the accounting cycle for the month of DecemberJournalize the December transactions. Do not record adjusting entries at1. this point.2. Post the December transactions to the appropriate ledger accounts.Prepare the unadjusted trial balances columns of a 10-column3. worksheet for the year ended December 31.4. Prepare the necessary adjusting entries for December.Post the December adjusting entries to the appropriate ledger accounts.5.Complete the 10-column worksheet for the year ended December 31st.6.Prepare an income statement and statement of retained earnings for the year ended December 31,b. and a balance sheet.Prepare required disclosures to accompany the December 31 financial statements. Your solutionc. should include a separate note 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 to ledger accounts.e. Prepare an after-closing trial balance as of December 31.During December, this company's cash balance has fallen from $400,000 to roughly $30,000. Does itappear that the company is headed for insolvency in the near future? How about net income? Is itsufficient to sustain its operations? Should the company be declaring dividends at such a rate?Explain your reasoning.f.Would it be ethical for Frank Shmo to maintain the accounting records for this company, or must theyg. be maintained by someone who is independent of the organization?COMPREHENSIVE PROBLEM 1MAMA AND PAPA's GARDENDING CENTER, INC.a.2012Dec1 CashGeneral JournalDecember Daily TransactionsCapital StockOwner invested cash in the business.Dec1Dec1Dec5Dec8Dec13Dec15Dec17Dec22Dec26Dec26Dec27Dec28Dec29Dec29Dec31Dec31400,000400,000COMPREHENSIVE PROBLEM 1MAMA AND PAPA's GARDENDING CENTER, INC.a.2012Dec3131313131313131General Journal(Adjusting Entries)COMPREHENSIVE PROBLEM 1MAMA AND PAPA's GARDENDING CENTER, INC.a.DateDec1ExplanationDateExplanationDateCashDebit400,000CreditBalance400,000Accounts ReceivableDebitCreditBalanceExplanationPrepaid RentDebitCreditBalanceDateExplanationUnexpired InsuranceDebitCreditBalanceDateExplanationOffice SuppliesDebitCreditBalanceCOMPREHENSIVE PROBLEM 1MAMA AND PAPA's GARDENDING CENTER, INC.a.Rental EquipmentDebitDateExplanationCreditBalanceDateExplanationAccumulated Depreciation: Rental EquipmentDebitCreditBalanceDateExplanationNotes PayableDebitCreditBalanceDateExplanationAccounts PayableDebitCreditBalanceDateExplanationInterest PayableDebitCreditBalanceCOMPREHENSIVE PROBLEM 1MAMA AND PAPA's GARDENDING CENTER, INC.a.DateExplanationSalaries PayableDebitCreditBalanceDateExplanationDividends PayableDebitCreditBalanceDateExplanationUnearned Rental FeesDebitCreditBalanceDateExplanationIncome Taxes PayableDebitCreditBalanceDateDec1ExplanationCapital StockDebitCredit400,000Balance400,000COMPREHENSIVE PROBLEM 1MAMA AND PAPA's GARDENDING CENTER, INC.a. & d.DateExplanationRetained EarningsDebitCreditBalanceDateExplanationDividendsDebitCreditBalanceDateExplanationIncome SummaryDebitCreditBalanceDateExplanationRental Fees EarnedDebitCreditBalanceDateExplanationSalaries ExpenseDebitCreditBalanceCOMPREHENSIVE PROBLEM 1MAMA AND PAPA's GARDENDING CENTER, INC.a. & d.DateExplanationMaintenance ExpenseDebitCreditBalanceDateExplanationUtilities ExpenseDebitCreditBalanceDateExplanationRent ExpenseDebitCreditBalanceDateExplanationOffice Supplies ExpenseDebitCreditBalanceCOMPREHENSIVE PROBLEM 1MAMA AND PAPA's GARDENDING CENTER, INC.a. & d.DateExplanationDepreciation ExpenseDebitCreditBalanceDateExplanationInterest ExpenseDebitCreditBalanceDateExplanationIncome Taxes ExpenseDebitCreditBalanceMAMA AND PAPA's GARDENDING CENTER, INC.WorksheetDecember 31, 2012a.UnadjustedTrial BalanceDebitCreditBalance sheet accounts :CashAccounts receivablePrepaid rentUnexpired insuranceOffice suppliesRental equipmentNotes payableAccounts payableUnearned rental feesDividends payableCapital stockRetained earningsDividendsInterest payableAccum. Dep.: rental equip.Salaries payableIncome taxes payableIncome statement accounts:Rental fees earnedSalaries expenseMaintenance expenseUtilities expense$300,7007,50015,00012,0001,000300,000Adjustments*DebitCreditAdjusted Trial BalanceDebitCreditIncome StatementDebitCreditBalance SheetDebitCredit$$$$$$(f)(a)(d)$ 200,0001,75010,0006,000400,000-$$$$$$$$$(e)6,00043,000$-(b)(c)(g)(h)17,000800750660,750-(e)(f)$(g)$$$-(a)(b)(c)(d)$$$$$-(h)$-$ 660,750Rent expenseInterest expenseDepreciation expenseOffice supplies expenseIncome taxes expense$Net incomeTotals* Adjustments(a) December rent expense ($15,000 3).(b) December interest expense ($200,000 x 9% x 1/12).(c) December depreciation expense ($300,000 120 months).(d) Office supplies used in December ($1,000 - $400).--$-$-$-----$(e) Portion of unearned revenue earned in December.(f) Accrued revenue earned in December.(g) Accrued salaries at month-end.(h) Accrued income taxes expense at month-end.-$-$-$-COMPREHENSIVE PROBLEM 1MAMA AND PAPA's GARDENDING CENTER, INC.b.MAMA AND PAPA's GARDENDING CENTER, INC.Income StatementFor the Year Ended December 31, 2012Revenue:$-$-Expenses$Income before income taxes expenseNet income-$MAMA AND PAPA's GARDENDING CENTER, INC.Statement of Retained EarningsFor the Year Ended December 31, 2012Retained earnings, December 1, 2012$0$0SubtotalRetained earnings, December 31, 2012$-COMPREHENSIVE PROBLEM 1MAMA AND PAPA's GARDENDING CENTER, INC.b.MAMA AND PAPA's GARDENDING CENTER, INC.Balance SheetDecember 31, 2012AssetsCashAccounts ReceivablePrepaid rentUnexpired insuranceOffice suppliesRental equipmentLess: Accumulated depreciationTotal assetsLiabilities & Stockholders' EquityLiabilities:Notes payableAccounts payableInterest payableSalaries payableDividends payableUnearned rental feesIncome taxes payableTotal liabilitiesStockholders' equity:Capital stockRetained earningsTotal Stockholders' EquityTotal liabilities and stockholders' equityc.Notes to the financial statements:Note 1???Depreciation policiesNote 2???Maturity dates of liabilitiesNote 3???Pending litigation$$$$-$--$$-$-$$-COMPREHENSIVE PROBLEM 1MAMA AND PAPA's GARDENDING CENTER, INC.d.General Journal(Closing Entries)2012Dec31313131e.MAMA AND PAPA's GARDENDING CENTER, INC.After-Closing Trial BalanceDecember 31, 2012$CashAccounts receivablePrepaid rentUnexpired insuranceOffice suppliesRental equipmentAccumulated depreciation: rental equipmentNotes payableAccounts payableInterest payableSalaries payableDividends payableUnearned rental feesIncome taxes payableCapital stockRetained earningsTotals-$-$-COMPREHENSIVE PROBLEM 1MAMA AND PAPA's GARDENDING CENTER, INC.f.g.?

A BC D The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31 of every year. During the month of December 2012, the corporation entered into the following transactions: Dec. 1 Issued to Jo and Frank Shmo 30,000 shares of capital stock in exchange for a total of $400,000 cash. Dec. 1Purchased rental equipment from Smith Rentals Inc. for the business for $300,000 by paying $100,000 cash and issued a one-year note payable for the remainder of the balance. The note, plus all 12-month of accrued interest, are due November 30, 1013. Dec. 1 Paid $15,000 to Smith Realty as three months' advance rent on the rental yard 23 Dec. 5 Purchased office supplies on account from a local supplies store. The supplies cost $1,000 and payment is due in 30 days. These supplies are expected to last several months - debit the Office Supplies asset account. 24 Dec. 8 Received $10,000 cash as an advance payment for equipment rentals from Alexis 25 26 Dec. 13 Paid salaries for the first two weeks in December, $8,500 Construction Company. (Credit Unearned Rental Fees) Dec. 15 Excluding the advance received on December 8th, equipment rental fees earned during the first 15 days of December amounted to $19,000, of which $15,000 was received in cash. 27 Dec. 17 Purchased on account from Dirt Movers Inc. $800 in parts needed to repair a rental tractor. (Debit an expense account.) Payment is due in 2 weeks 28 29 Dec. 22 Collected $2,000 of the accounts receivable recorded on December 15th. Dec. 26 Rented a backhoe to Levy Landscaping at a price of $300 per day, to be paid when the backhoe is returned. Levy Landscaping expects to keep the backhoe for about 2-3 weeks. 30 31 Dec. 26 Paid biweekly salaries, $8,500 32 Dec. 27 Paid the account payable to Dirt Movers Inc., $800, 33 Dec. 28 Declared a cash dividend of 20 cents per shar Dec. 29 Mama & Papa's Gardening Center Inc., along with Levy Landscaping, were named s co-defendant in a $40,000 lawsuit filed on behalf of Christopher Robin. L Landscaping had left the rented backhoe on their fenced in Problem Data Problem Data (2) Levy property. Instructions CP1 CP1(p.2) CP1(p.3)CP1(p4) A BC D The corporation performs adjusting entries monthly. Closing entries are performed annually on December 31 of every year. During the month of December 2012, the corporation entered into the following transactions: Dec. 1 Issued to Jo and Frank Shmo 30,000 shares of capital stock in exchange for a total of $400,000 cash. Dec. 1Purchased rental equipment from Smith Rentals Inc. for the business for $300,000 by paying $100,000 cash and issued a one-year note payable for the remainder of the balance. The note, plus all 12-month of accrued interest, are due November 30, 1013. Dec. 1 Paid $15,000 to Smith Realty as three months' advance rent on the rental yard 23 Dec. 5 Purchased office supplies on account from a local supplies store. The supplies cost $1,000 and payment is due in 30 days. These supplies are expected to last several months - debit the Office Supplies asset account. 24 Dec. 8 Received $10,000 cash as an advance payment for equipment rentals from Alexis 25 26 Dec. 13 Paid salaries for the first two weeks in December, $8,500 Construction Company. (Credit Unearned Rental Fees) Dec. 15 Excluding the advance received on December 8th, equipment rental fees earned during the first 15 days of December amounted to $19,000, of which $15,000 was received in cash. 27 Dec. 17 Purchased on account from Dirt Movers Inc. $800 in parts needed to repair a rental tractor. (Debit an expense account.) Payment is due in 2 weeks 28 29 Dec. 22 Collected $2,000 of the accounts receivable recorded on December 15th. Dec. 26 Rented a backhoe to Levy Landscaping at a price of $300 per day, to be paid when the backhoe is returned. Levy Landscaping expects to keep the backhoe for about 2-3 weeks. 30 31 Dec. 26 Paid biweekly salaries, $8,500 32 Dec. 27 Paid the account payable to Dirt Movers Inc., $800, 33 Dec. 28 Declared a cash dividend of 20 cents per shar Dec. 29 Mama & Papa's Gardening Center Inc., along with Levy Landscaping, were named s co-defendant in a $40,000 lawsuit filed on behalf of Christopher Robin. L Landscaping had left the rented backhoe on their fenced in Problem Data Problem Data (2) Levy property. Instructions CP1 CP1(p.2) CP1(p.3)CP1(p4)