Question

SMC, Inc.

Balance Sheet December 31, 2017

Assets
Cash .........................................................................................................$34,500

Accounts receivable................................................................................$25,000

Inventory ..................................................................................................$10,000

Supplies ................................................................................................... $200

Total assets..............................................................................................$69,700

Liabilities:

Accounts payable ............................................................................. $12,000

Salaries payable ............................................................................... $1000

Income taxes payable ......................................................................$3,675

Total liabilities..........................................................................................$16,675

Stockholders’equity:

Capital stock (10,000 shares outstanding).................................... $25,000

Retained earnings ............................................................................ $28,025

Total stockholders’ equity .......................................................................$53,025

Total liabilities and stockholders’ equity................................................ $69,700

Liabilities and Stockholders’ Equity

SMC, Inc.
Income Statement

FortheYearEnded

December31,2017

Sales revenue.......................................................................................... $110,000

Rent revenue........................................................................................... $1000

Total revenues......................................................................................... $111,000

Less cost of goodssold........................................................................... $60,000

Gross Profit...........................................................................................$51,000

Less operating expenses:

Supplies expense............................................................................. $400

Salaries expense..............................................................................$22,000

Insurance expense................................................................... $4,100 $26,500

Income beforetaxes................................................................................ $24,500

Less incometaxes...................................................................................$3,675

Netincome............................................................................................... $20,825

Earnings per share ($20,825 / 10,000shares) $2.08

SMC, Inc. Post-Closing Trial Balance December 31, 2017

Cash .........................................................................................................$34,500(DEBIT)

Accounts Receivable............................................................................... $25,000(DEBIT)

Inventory .................................................................................................. $10,000(DEBIT)

Supplies ................................................................................................... $200(DEBIT)

Accounts Payable .................................................................................... $12,000(CREDIT)

Salaries Payable ...................................................................................... $1000(CREDIT)

Income TaxesPayable.............................................................................$3675(CREDIT)

Capital Stock............................................................................................$25,000(CREDIT)

Retained Earnings ...................................................................................$28,025(CREDIT)

Totals........................................................................................................$69,700

You are also given the following information that summarizes the business activity for the current year,2018:

Issued 10,000 additional shares of common stock for $35,000 cash on January 1st.

Borrowed $20,000 on March 1, 2018, from Downtown Bank as a long-term loan. The interest rate

onthe loanis4%andInterestfortheyearispayableonJanuary1,2019.

Paid $9,000 cash on April1 to lease a building for one year.

Received $6,000 on May 1 from a tenant for one year’s rent.

Paid $2,400 on June 1 for a one-year insurance policy.

Purchased $1,530 of supplies for cash on June 15th.

Purchased inventory for $100,000 on account on July 1.

August 1, sold inventory for $185,000 on account; cost of the merchandise sold was $107,000.

Collected $120,000 cash from customers’ accounts receivable on August 20th.

September1,Paid $75,000cashforinventoriespurchasedearlierduringtheyear.

September 20th, paid $34,000 for sales reps’ salaries, including $1,000 owed at the beginning of 2018.

Dividends for $7,500 were paid on October 20th.

The income taxes payable at the beginning of 2018 were paid on November 15th.

For adjusting entries, all prepaid expenses are initially recorded as assets, and all unearned revenues

are initially recorded as liabilities.

At year-end, $600 worth of supplies are on hand.

At year-end, an additional $7,100 of sales salaries are owed, but have not yet been paid.

Prepare an adjusting entry to recognize the taxes owed for 2018. The corporate tax rate is 21% of the

income before income taxes.

You are asked to do the following on the excel spreadsheet provided in Blackboard under the Computer Project Tab:

1.)Set up T-accounts and enter the beginning balances from the December 31, 2017, post-closing trial balance for SMC. Post all current year journal entries to the T- accounts.

2.)Journalize and post any necessary adjusting entries at the end of 2018. (Hint: Items b, c, d, e, o, p, and q require adjustment.)

3.)Journalize and post-closing entries for 2018 and prepare a post-closing trial balance.

4.)After the adjusting entries are posted, prepare an adjusted trial balance, an income statement, statement of retained earnings and a balance sheet for 2018. The format of your statements should mirror those prepared by the company in 2017.

5.)Compute the Current ratio and Debt to Total Asset Ratio for 2017 and 2018

Answer 1

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Date	Account	Debit	Credit
Jan 1	Cash	$   35,000
Jan 1	Capital Stock		$   35,000
Mar 1	Cash	$   20,000
Mar 1	Long Term Note Payable		$   20,000
Apr1	Prepaid Leases	$     9,000
Apr1	Cash		$     9,000
May 1	Cash	$     6,000
May 1	Unearned Rent Revenue		$     6,000
Jun 1	Prepaid Insurance	$     2,400
Jun 1	Cash		$     2,400
Jun 15	Supplies	$     1,530
Jun 15	Cash		$     1,530
Jul 1	Merchandise Inventory	$ 100,000
Jul 1	Accounts Payable		$ 100,000
Aug 1	Accounts Receivable	$ 185,000
Aug 1	Sales Revenue		$ 185,000
Aug 1	Cost of Goods Sold	$ 107,000
Aug 1	Merchandise Inventory		$ 107,000
Aug 20	Cash	$ 120,000
Aug 20	Accounts Receivable		$ 120,000
Sep 1	Accounts Payable	$   75,000
Sep 1	Cash		$   75,000
Sep 20	Salaries Payable	$     1,000
Sep 20	Salaries Expense	$   33,000
Sep 20	Cash		$   34,000
Oct 20	Dividends	$     7,500
Oct 20	Cash		$     7,500
Nov 15	Income Tax Payable	$     3,675
Nov 15	Cash		$     3,675
Adjusting Entries:
b	Interest Expenses	$         667		20000*4%*10/12
b	Interest Payable		$         667
c	Lease Expenses	$     6,750		9000/12*9
c	Prepaid Leases		$     6,750
d	Unearned Rent Revenue	$     4,000		6000/12*8
d	Rent Revenue		$     4,000
e	Insurance Expenses	$     1,400		2400/12*7
e	Prepaid Insurance		$     1,400
o	Supplies Expense	$     1,130		200+1530-600
o	Supplies		$     1,130
p	Salaries Expense	$     7,100
p	Salaries Payable		$     7,100
q	Income Tax Expenses	$     6,710
q	Income Taxe Payable		$     6,710

Cash					Sales Revenue
Debit		Credit			Debit		Credit
Beginning	34500	Apr 1	9000				Aug 1	185000
Jan 1	35000	Jun 1	2400
Mar 1	20000	Jun 15	1530
May 1	6000	Nov 15	3675
Aug 20	120000	Sep 1	75000
		Sep 20	34000		Rent Revenue
		Oct 20	7500		Debit		Credit
							Dec 31	4000
Ending	82395
					Cost of Goods Sold
					Debit		Credit
					Aug 1	107000
Accounts Receivable
Debit		Credit
Beginning	25000	Aug 20	120000
Aug 1	185000
					Salaries Expenses
Ending	90000				Debit		Credit
					Sep 20	33000
					Dec 31	7100
Merchandise Inventory
Debit		Credit
Beginning	10000	Aug 1	107000
Jul 1	100000				Supplies Expenses
					Debit		Credit
Ending	3000				Dec 31	1130
Supplies
Debit		Credit
Beginning	200	Dec 31	1130
Jun 15	1530				Lease Expenses
					Debit		Credit
Ending	600				Dec 31	6750
Prepaid Leases
Debit		Credit
Apr 1	9000	Dec 31	6750
					Insurance Expenses
Ending	2250				Debit		Credit
					Dec 31	1400
Prepaid Insurance
Debit		Credit
Jun 1	2400	Dec-31	1400
					Incomet Tax Expenses
Ending	1000				Debit		Credit
					Dec 31	6710
Accoutns Payable
Debit		Credit
		Beginning	12000
Sep 1	75000	Jul 1	100000		Interest Expenses
					Debit		Credit
		Ending	37000		Dec 31	667
Salaries Payable
Debit		Credit
Sep 20	1000	Beginning	1000
		Dec 31	7100
		Ending	7100
Long Term Note payable
Debit		Credit
		Mar 1	20000
		Ending	20000
Interest Payable
Debit		Credit
		Dec 31	667
		Ending	667
Income Tax Payable
Debit		Credit
Nov 15	3675	Beginning	3675
		Dec 31	6710
		Ending	6710
Unearned Rent Revenue
Debit		Credit
Dec 31	4000	May 1	6000
		Ending	2000
Capital Stock
Debit		Credit
		Beginning	25000
		Jan 1	35000
		Ending	60000
Retained Earning
Debit		Credit
Dec 31-Dividend	7500	Beginning	28025
		Net Income-dec 31	23965
		Ending	44490
Dividends
Debit		Credit
Oct 20	7500	Retained Earning	7500

Adjusted Trial Balance
	Beginning		2018		Adjusted Trial		Post Closing Trial
Account	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$       34,500		$         47,895		$         82,395		$   82,395
Accounts Receivable	$       25,000		$         65,000		$         90,000		$   90,000
Merchandise Inventory	$       10,000			$           7,000	$           3,000		$     3,000
Supplies	$            200		$              400		$              600		$         600
Prepaid Leases			$           2,250		$           2,250		$     2,250
Prepaid Insurance			$           1,000		$           1,000		$     1,000
Accounts Payable		$         12,000		$         25,000		$         37,000		$   37,000
Salaries Payable		$           1,000		$           6,100		$           7,100		$     7,100
Income Tax Payable		$           3,675	$           3,675	$           6,710		$           6,710		$     6,710
Long Term Note Payable				$         20,000		$         20,000		$   20,000
Interest Payable				$              667		$              667		$         667
Unearned Rent Revenue				$           2,000		$           2,000		$     2,000
Capital Stock		$         25,000		$         35,000		$         60,000		$   60,000
Retained Earnings		$         28,025				$         28,025		$   45,768
Dividends			$           7,500		$           7,500
Sales Revenue				$       185,000		$       185,000
Rent Revenue				$           4,000		$           4,000
Cost of Goods Sold			$       107,000		$       107,000
Salaries Expense			$         40,100		$         40,100
Supplies Expense			$           1,130		$           1,130
Lease Expenses			$           6,750		$           6,750
Income Tax Expenses			$           6,710		$           6,710
Insurance Expenses			$           1,400		$           1,400
Interest Expenses			$              667		$              667
Total	$       69,700	$         69,700	$       291,477	$       291,477	$       350,502	$       350,502	$ 179,245	$ 179,245
Income Statement:
Sales revenue		$       185,000
Rent revenue		$           4,000
Total revenues		$       189,000
Less cost of goods sold		$       107,000
Gross margin		$         82,000
Less operating expenses:
Salaries Expense	$       40,100
Supplies Expense	$         1,130
Lease Expenses	$         6,750
Insurance Expenses	$         1,400
Interest Expenses	$            667
Total Operating Expenses:		$         50,047
Income before taxes		$         31,953
Less income taxes 21%		$           6,710
Net income		$         25,243
Earnings per share ( $23965 / 20,000 shares) $   1.20
Statement of Retained Earning:
Begingin Retained Earning		$         28,025
Add: Net Income		$         25,243
Less: Dividends		$           7,500
Ending Retained Earning		$         45,768
Balance Sheet:
Cash		$         82,395
Accounts receivable		$         90,000
Inventory		$           3,000
Supplies		$              600
Prepaid Lease		$           2,250
Prepaid Insurance		$           1,000
Total assets		$       179,245
Liabilities:
Accounts Payable		$         37,000
Salaries Payable		$           7,100
Income Tax Payable		$           6,710
Interest Payable		$              667
Unearned Rent Revenue		$           2,000
Current Liabilities		$         53,477
Long Term Note Payable		$         20,000
Total liabilities		$         73,477
Stockholders’equity:
Capital stock (20,000 shares outstanding)		$         60,000
Retained earnings		$         45,768
Total stockholders’ equity		$       105,768
Total liabilities and stockholders’ equity		$       179,245
Current Ratio Current Assets/Current Liabilities		3.35
Debt to Total Asset Total Liabilities/Total Assets		0.41