Prepare required disclosures to accompany the December 31 financial statements. Your solution 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 Credit SUSQUEHANNA EQUIPMENT RENTALS After-Closing Trial Balance December 31, Year 1 Debit Cash $ 78,000 Accounts receivable 11,880 Prepaid rent 9,600 Unexpired insurance 11,520 [Office supplies 720 Rental equipment 288,000 Accumulated depreciation: rental equipment Notes payable Accounts payable interest payable Salaries payable Dividends payable Unearned rental fees Income taxes payable Capital stock (Retained earnings 3,000 120,000 2,040 600 1,680 2,400 5,160 10,896 240,000 13,944 Totals $ 399,720 $ 399,720 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, a equipment rental company that was going out of business. The newly formed company uses the following accounts. Capital Stock Retained Earnings Dividends Income Summary Rental Fees Earned Salaries Expense 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 Maintenance Expense Utilities Expense Rent Expense Office Supplies Expense Depreciation Expense Interest Expense Incone Taxes Expense 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 ar 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 McNanter Construction Company. (Credit Unearnec Rental Fees.) Dec. 12 Paid salaries for the first two weeks in December, $6,240. 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-yea 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 Rent-It. Dec. 4 Purchased office supplies on account from Modern Office Co., $1,200. Payment due in 30 days. (These supplies 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 Unear 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 exp account.) Payment is due in 10 days. Dec. 23 Collected $2,4ee 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., $728. 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 fe 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 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 $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. 9. 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 Prepare an after closing trial balance as of December 31. SUSQUEHANNA EQUIPMENT RENTALS After-Closing Trial Balance December 31, Year 1 Debit Credit