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In: Accounting

As a recently hired accountant for a small business, SMC, Inc., you are provided with last...

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.

SMC, Inc.
Balance sheet
December 31, 2019
Assets $34,500
Cash $25,000
Accounts receivable $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 December 31, 2019

Sales revenue $110,000
Rent revenue $1,000
Total revenue $111,000
Less cost of goods sold $60,000
Gross profit $51,000
Less operating expense:
Supplies expense $400
Salaries expense $22,000
Miscellaneous expense $4,100 $26,500
Income before taxes $24,500
Less Income taxes $3,675
Net income $20,825
Earnings per share ($20,825/10,000 shares) $2.08
SMC, Inc.
Post-closing trial balance
Cash $34,500
Accounts receivable $25,000
Inventory $10,000
Supplies $200
Accounts payable $12,000
Salaries payable $1,000
Income taxes payable $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 on March 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 April 1 to lease a building for one year.

D. Received $6,000 on May 1 from a tenant for one years 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 of the merchandise sold was $120,000.

I. Collected $145,000 cash from customers accounts receivable on August 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 at the beginning of 2020.

L. Dividends for $9,500 were paid on October 20th.

M. The income taxes payable for the year of 2019 were paid on November 15th.

N. For adjusting entries, all prepaid expense are initially recorded as assets, and all 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 and 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:
Income statement
Statement of retained earnings
Balance sheet
Closing entries

Solutions

Expert Solution


ekkarill92 answered 2 years ago
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