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

Debits

$34,500

25,000 10,000 200

$69,700

Credits

$12,000 1,000 3,675 25,000 28,025 $69,700

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:

Journalize the transactions for the current year, 2018, using the accounts listed on the chart of account (first worksheet on the Excel file).

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.

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

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.

business activity for the current year, 2018

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

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

Answer 1

SMC INC.
General Journal for the year ending December 31, 2018
Ref.	Date	Account title	Debit	Credit
a	Jan.1	Cash	45000
		Commom stock		45000
b	Mar.1	Cash	20000
		Bank barrowing		20000
c	April.1	Prepaid rent	7200
		Cash		7200
d	May.1	Cash	4800
		Unearned revenue		4800
e	June.1	Prepaid insurance	2400
		Cash		2400
f	June.15	Supplies	2570
		Cash		2570
g	July.1	Inventory	100000
		Accounts payable		100000
h	Aug.1	Accounts receivable	165000
		Sales		165000
		Cost of goods sold	92000
		Inventory		92000
i	Aug.20	Cash	105000
		Accounts receivable		105000
j	Sept.1	Accounts payable	80000
		Cash		80000
k	Sept.20	Salaries expense	31000
		Salaries payable	1000
		Cash		32000
l	Oct.20	Dividend	8500
		Cash		8500
m	Nov.15	Income tax payable	3675
		Cash		3675

SMC INC.
Adjusting Journal entries for the year ending December 31, 2018
Ref.	Date	Account title	Debit	Credit
n	Dec.31	Interest expense	1000
		Interest payable		1000
	Dec.31	Rent expense	4800
		Prepaid rent		4800
	Dec.31	Insurance expense	1400
		Prepaid insurance		1400
	Dec.31	Unearned revenue	3200
		Rent expense		3200
o	Dec.31	Supplies expense	2170
		Supplies		2170
p	Dec.31	Salaries expense	9100
		Salaries payable		9100
q	Dec.31	Income tax expense	6684
		Income tax payable		6684

SMC INC.
Post closing Journal entries for the year ending December 31, 2018
Ref.	Date	Account title	Debit	Credit
	Dec.31	Sales Revenue	165000
		Rent Revenue	3200
		Cost of goods sold		92000
		Salaries expense		40100
		Interest expense		1000
		Rent expense		4800
		Insurance expense		1400
		Supplies expense		2170
		Income tax expense		6684
		Income summary		20046
	Dec.31	Income summary	20046
		Retained earnings		20046
	Dec.31	Retained earnings	8500
		Dividend		8500

SMC INC.
Trial Balance as at December 31, 2018
Account	Opening		Transactions		Unadjusted		Adjustments		Adjusted		Income statement		Post Closing
	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
Cash	34500		174800	136345	72955				72955				72955
Accounts receivable	25000		165000	105000	85000				85000				85000
Inventory	10000		100000	92000	18000				18000				18000
Supplies	200		2570		2770			2170	600				600
Prepaid rent			7200		7200			4800	2400				2400
Prepaid insurance			2400	0	2400			1400	1000				1000
Accounts payable		12000	80000	100000		32000				32000				32000
Salaries payable		1000	1000			0		9100		9100				9100
Bank barrowing				20000		20000				20000				20000
Income tax payable		3675	3675			0		6684		6684				6684
Interest payable						0		1000		1000				1000
Unearned revenue				4800		4800	3200			1600				1600
Common stock		25000		45000		70000				70000				70000
Retained earnings		28025				28025	8500	20046		39571				59617
Dividend			8500		8500			8500	0
Sales Revenue				165000		165000				165000		165000
Rent Revenue			0			0		3200		3200		3200
Cost of goods sold			92000		92000				92000		92000
Salaries expense			31000		31000		9100		40100		40100
Interest expense					0		1000		1000		1000
Rent expense					0		4800		4800		4800
Insurance expense					0		1400		1400		1400
Supplies expense					0		2170		2170		2170
Income tax expense							6684		6684		6684
Net income							20046		20046		20046
T o t a l	69700	69700	668145	668145	319825	319825	56900	56900	348155	348155	168200	168200	179955	200001