Backhoe Rental

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JACKSON EQUIPMENT RENTAL COMPANY

On August 1, 2006, Jackson Equipment Rental Company was formed by Sam and John Jackson. Jackson’ Chart of Accounts appears below:

CashIncome Taxes Payable
Accounts ReceivableIncome Tax Expense
Prepaid Rent
Unexpired InsuranceSam Jackson, Capital
Office Supplies InventoryIncome Summary
Rental Equipment InventoryEarned Rental Fees
Accumulated Depreciation:Salaries Expense
Rental EquipmentMaintenance Expense
Notes PayableUtilities Expense
Accounts PayableRent Expense
Interest PayableOffice Supplies Expense
Salaries PayableDepreciation Expense
Sam Jackson, DrawingInterest Expense
Unearned Rental Fees

Jackson closes its accounts and prepares financial statements monthly. The following were the company’s August transactions:

1.8/1Sam Jackson contributed $100,000 cash to start the business.
2.8/1Purchased all of the rental equipment of a recently closed equipment rental
equipment company for $180,000. Paid $70,000 cash and signed a one-year note
payable to the owner, Ralph Bass, for $110,000.
3. 8/1Paid 3 months rent in advance of $9,000 for the building and yard to Sharks
Realty.
4. 8/4Purchased $2,000 office supplies on account from Sayes Office Supply. Payment
is due in 30 days. These supplies are expected to last 4 months.
5.8/8McCumber Company paid $20,000 cash as an advance payment on rental
equipment.
6. 8/12 Paid Salaries for the first two weeks of August: $4,100.
7.8/15Earned equipment rental fees for the first 15 days of August of $9,000. A total
of $8,000 of this amount was received in cash. This does not include the
McCumber account.
8.8/17Purchased $500 of payloader repair parts from Davis Tractor Company. Parts
were needed to repair a payloader. Payment is due in 10 days.
9. 8/23Received a payment of $300 on the amount due from August 15.
10.8/26Rented a backhoe to Jacobs Plumbing company at $100 per day. Payment
is due when the backhoe is returned in 2 weeks.
11.8/26Paid bi-weekly salaries of $4,100.
12.8/27Paid the amount owed to Davis Tractor Company.
13. 8/28 Sam Jackson withdrew $4,000 for his personal use.

JACKSON EQUIPMENT RENTAL COMPANY

14.8/29Jacobs Plumbing left the rented backhoe inside a locked fence at a construction
site of the prime contractor Ellis Construction. A 12 year old boy climbed the
fence and broke his leg playing on the backhoe. Jackson, Jacobs and Ellis have
been sued for by the parents for $50,000. The extent of Jackson’s liability
cannot be reasonably determined.
15.8/29Jackson purchased a one year liability insurance policy for $2,700. The policy
period begins September 1.
16.8/30Received a $600 utility bill for August. Payment due in 30 days.
17.8/30Equipment rental fees earned the last half of the month totaled $10,000.
Received cash payments for the total.

The following is information needed to prepare the company’s adjusting entries at the end of August:

1.The advance rent payment on August 1 was for three months.
2.There was $800 of accrued interest in August on the note payable.
3.Rental equipment is depreciated over 10 years on a straight-line basis.
4.Office supplies on hand at August 31 total $1,100.
5.During August, Jackson earned $12,000 of the rental fees McCumber paid in advance on September 8.
6.At August 31, Jackson earned 5 days of rent on the backhoe rented to Jacobs Plumbing.
7.Salaries earned but not paid since the last payroll date amount to $1,000.
8.Jackson’s estimated tax rate is 40% of its income before income taxes. Taxes will be paid September 15.

Instructions:

a.Journalize the above transactions.
b.Post the transactions to ledger (T) accounts.
c.Prepare a 10 column worksheet for the month ended August 31.
d.Prepare the Adjusting entries on needed on August 31 and post them to T-Accounts and Spreadsheet.
e.Prepare the August Income Statement, Statement of Owner’s Equity, and
Balance Sheet.
f.Prepare closing entries for August.

Could I use a rental bobcat with a backhoe attachment? Or do I need more power?

Does anyone know of a good insurance company for backhoes?

For liability? Or inland marine? The problem is, it's contractors type coverage – which costs more. Also, it's much harder (and more expensive) to limit liability to just the damage the backhoe does (which, btw, usually needs to include underground, explosion and collapse).

You REALLY should have Read the rest of this entry »