Question

As a recently hired accountant for a small business, SMC, Inc., you are provided with last year’s balance sheet, income statement, and post-closing trial balance to familiarize yourself with the business.

You are also given the following information that summarizes the business activity for the current year,2020

As arecently hired accountantfor a smallbusiness,SMC,Inc., you are providedwithlast year’s balance sheet, income statement, and post-closing trial balance to familiarize yourself with the business. SMC, Inc. Balance Sheet December 31, 2019 Assets Cash ......................................................................................................... $34,500 Accounts receivable ................................................................................ 25,000 Inventory .................................................................................................. 10,000 Supplies ................................................................................................... 200 Total assets.............................................................................................. $69,700 Liabilities and Stockholders’ Equity Liabilities: Accounts payable ............................................................................. $12,000 Salaries payable ............................................................................... 1,000 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 SMC, Inc. Income Statement For the Year Ended December31,2019 Sales revenue .......................................................................................... $110,000 Rent revenue ........................................................................................... 1,000 Total revenues......................................................................................... $111,000 Less cost of goods sold........................................................................... 60,000 Gross profit ........................................................................................... $ 51,000 Less operating expenses: Supplies expense ............................................................................. $ 400 Salaries expense .............................................................................. 22,000 Miscellaneous expense................................................................... 4,100 26,500 Income beforetaxes................................................................................ $ 24,500 Less income taxes................................................................................... 3,675 Net income............................................................................................... $ 20,825 Earnings per share ( $20,825 / 10,000shares) $ 2.08 SMC, Inc. Post-Closing Trial Balance December 31, 2019 Debits Credits Cash ......................................................................................................... $34,500 Accounts Receivable............................................................................... 25,000 Inventory .................................................................................................. 10,000 Supplies ................................................................................................... 200 Accounts Payable.................................................................................... $12,000 Salaries Payable ...................................................................................... 1,000 Income TaxesPayable............................................................................. 3,675 Common Stock............................................................................................ 25,000 Retained Earnings ................................................................................... 28,025 Totals........................................................................................................ $69,700 $69,700 You are also given the following information that summarizes the business activity for the current year,2020 a. Issued 10,000 additional shares of common stock for $60,000 cash on January 1st. b. Borrowed $25,000 onMarch 1,2020,from Downtown Bank as a long-term loan. The interest rate on the loan is 4%and Interest for the year is payable on January 1, 2021. c. Paid $12,000 cash on April1 to lease a building for one year. d. Received $6,000 on May 1 from a tenant for one year’s rent. e. Paid $4,200 on June 1 for a one-year insurance policy. f. Purchased $3,500 of supplies for cash on June 15th. g. Purchased inventory for $125,000 on account on July 1. h. August 1, sold inventory for $185,000 on account; cost ofthe merchandise sold was $120,000. i. Collected $145,000 cash from customers’ accounts receivable onAugust 20th. j. September 1,Paid $95,000 cash for inventories purchased earlier during the year. k. September 20th paid $34,000 for sales reps’ salaries, including $1,000 owed atthe beginning of2020. l. Dividends for $9,500 were paid onOctober 20th. m. The income taxes payable for the year of 2019 were paid on November 15th. n. For adjusting entries, all prepaid expenses are initially recorded asassets, andall unearned revenues are initially recorded as liabilities (this is just informational). o. At year-end, $1,050 worth of supplies are on hand. p. At year-end, an additional $9,500 of sales salaries are owed, but have not yet been paid. q. Prepare an adjusting entry to recognize the taxes owed for 2020. The corporate tax rate is 21% of the income before income taxes. You are asked to do the following on an excel spreadsheet: 1. Journalize the transactions for the current year, 2020, using the chart of accounts listed on the excel spreadsheet provided for the project. 2. Set up T-accounts and enter the beginning balances from the December 31, 2019, post-closing trial balance for SMC. Post all current year journal entries to the T-accounts. 3. Journalize and post any necessary adjusting entries at the end of 2020. (Hint: Items b, c, d, e, o, p, and q require adjustment.) 4. After the adjusting entries are posted, prepare an adjusted trial balance, an income statement, statement ofretained earnings and a balance sheet for 2020. The format of your statements should mirror those prepared by the company in 2019. 5. Journalize and post-closing entries for 2020 and prepare a post-closing trial balance. 6. Compute the Current Ratio and Debt to Total Equity Ratio for 2019 and 2020 7. Interpretive Question: What is your overall assessmen

Assignment Summary

On the excel spreadsheet attached, perform the following tasks using the information from SMC, Inc. provided above:

1. Journalize the transactions for the current year, 2020, using the chart of accounts on the excel spreadsheet provided

Answer 1

Answer:	SMC Inc.
	Journal
	Sl No	Date	Particulars	Debit	Credit
	a	01-Jan	Cash	$    60,000.00
			Capital Stock		$    25,000.00
			Premium on Issue of shares		$    35,000.00
			(Shares issued)
	b	01-Mar	Cash	$    25,000.00
			Long Term Loan		$    25,000.00
			(Loan taken from bank)
		31-Dec	Interest Expenses	$         833.33
			Interest Payable		$         833.33
			(Interest for 10 months payable)
	c	01-Apr	Rent Expenses	$      9,000.00
			Prepaid Rent	$      3,000.00
			Cash		$    12,000.00
			(Lease rent paid for 1 year)
	d	01-May	Cash	$      6,000.00
			Rent Revenue		$      4,000.00
			Advance Rent revenue		$      2,000.00
			(Rent received for one year)
	e	01-Jun	Insurance Expenses	$      2,450.00
			Prepaid Insurance	$      1,750.00
			Cash		$      4,200.00
			(Insurance expense paid for 1 year)
	f	15-Jun	Cost of Goods Sold	$      3,500.00
			Cash		$      3,500.00
			(Supplies purchased)
	g	01-Jul	Cost of Goods Sold	$ 1,25,000.00
			Accounts Payable		$ 1,25,000.00
			(Supplies purchased)
	h	01-Aug	Accounts Receivable	$ 1,85,000.00
			Cost of Goods Sold		$ 1,20,000.00
			Retained Earnings		$    65,000.00
			(Sales on account)
	i	20-Aug	Cash	$ 1,45,000.00
			Accounts Receivable		$ 1,45,000.00
			(Accounts receivable received)
	j	01-Sep	Accounts Payable	$    95,000.00
			Cash		$    95,000.00
			(Accounts payable paid)
	k	20-Sep	Salaries Payable	$      1,000.00
			Salaries Expenses	$    33,000.00
			Bank		$    34,000.00
			(Salaries paid)
	l	20-Oct	Dividends Expenses	$      9,500.00
			Cash		$      9,500.00
			(Dividends paid)
	m	15-Nov	Income Tax payable	$      3,675.00
			Cash		$      3,675.00
			(Income tax paid)
	o	31-Dec	Retained Earnings	$      8,950.00
			Inventory		$      8,950.00
			(Closing inventory adjusted)
	p	31-Dec	Salaries expenses	$      9,500.00
			Salaries payable		$      9,500.00
			(Salaries unpaid)
	q	31-Dec	Income Tax expenses	=21%8PBT
			Income Tax payable		=21%8PBT
			(Income tax expenses recognised)
			(Note: Tax can be determined on preparation of Income Statement which is not a requirement of the question)