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.

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 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 December31,2017 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, 2017 Debits Credits Cash ......................................................................................................... $34,500 Accounts Receivable............................................................................... 25,000 Inventory .................................................................................................. 10,000 Supplies ................................................................................................... Accounts Payable.................................................................................... 200 $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,2018

a.	Issued 10,000 additional shares of common stock for $25,000 cash on January 1st.
b.	Borrowed $10,000 on March 1, 2018, from Downtown Bank as a long-term loan. The interest rate on the loan is 5% and Interest for the year is payable on January 1, 2019.
c.	Paid $9,000 cash on April 1 to lease a building for one year.
d.	Received $4,800 on May 1 from a tenant for one year’s rent.
e.	Paid $3,600 on June 1 for a one-year insurance policy.
f.	Purchased $2,200 of supplies for cash on June 15th.
g.	Purchased inventory for $100,000 on account on July 1.
h.	August 1, sold inventory for $170,000 on account; cost of the merchandise sold was $90,000.
i.	Collected $110,000 cash from customers’ accounts receivable on August 20th.
j.	September 1, Paid $85,000 cash for inventories purchased earlier during the year.
k.	September 20th paid $31,000 for sales reps’ salaries, including $1,000 owed at the beginning of 2018.
l.	Dividends for $9,500 were paid on October 20th.
m.	The income taxes payable for the year of 2017 were paid on November 15th.
n.	For adjusting entries, all prepaid expenses are initially recorded as assets, and all unearned revenues are initially recorded as liabilities (this is just informational).
o.	At year-end, $850 worth of supplies are on hand.
p.	At year-end, an additional $6,500 of sales salaries are owed, but have not yet been paid.
q.	Prepare an adjusting entry to recognize the taxes owed for 2018. The corporate tax rate is 25% of the income before income taxes.

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.

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
Date	Account	Debit	Credit
Jan 1	Cash	$   25,000
Jan 1	Capital Stock		$   25,000
Mar 1	Cash	$   10,000
Mar 1	Long Term Note Payable		$   10,000
Apr1	Prepaid Leases	$      9,000
Apr1	Cash		$      9,000
May 1	Cash	$      4,800
May 1	Unearned Rent Revenue		$      4,800
Jun 1	Prepaid Insurance	$      3,600
Jun 1	Cash		$      3,600
Jun 15	Supplies	$      2,200
Jun 15	Cash		$      2,200
Jul 1	Merchandise Inventory	$ 100,000
Jul 1	Accounts Payable		$ 100,000
Aug 1	Accounts Receivable	$ 170,000
Aug 1	Sales Revenue		$ 170,000
Aug 1	Cost of Goods Sold	$   90,000
Aug 1	Merchandise Inventory		$   90,000
Aug 20	Cash	$ 110,000
Aug 20	Accounts Receivable		$ 110,000
Sep 1	Accounts Payable	$   85,000
Sep 1	Cash		$   85,000
Sep 20	Salaries Payable	$      1,000
Sep 20	Salaries Expense	$   30,000
Sep 20	Cash		$   31,000
Oct 20	Dividends	$      9,500
Oct 20	Cash		$      9,500
Nov 15	Income Tax Payable	$      3,675
Nov 15	Cash		$      3,675
Adjusting Entries:
b	Interest Expenses	$         416		10000*5%*10/12
b	Interest Payable		$         416
c	Lease Expenses	$      6,750		9000/12*9
c	Prepaid Leases		$      6,750
d	Unearned Rent Revenue	$      3,200		4800/12*8
d	Rent Revenue		$      3,200
e	Insurance Expenses	$      2,100		3600/12*7
e	Prepaid Insurance		$      2,100
o	Supplies Expense	$      1,550		200+2200-850
o	Supplies		$      1,550
p	Salaries Expense	$      6,500
p	Salaries Payable		$      6,500
q	Income Tax Expenses	$      8,971
q	Income Taxe Payable		$      8,971

Cash					Sales Revenue
Debit		Credit			Debit		Credit
Beginning	34500	Apr 1	9000				Aug 1	170000
Jan 1	25000	Jun 1	3600
Mar 1	10000	Jun 15	2200
May 1	4800	Nov 15	3675
Aug 20	110000	Sep 1	85000
		Sep 20	31000		Rent Revenue
		Oct 20	9500		Debit		Credit
							Dec 31	3200
Ending	40325
					Cost of Goods Sold
					Debit		Credit
					Aug 1	90000
Accounts Receivable
Debit		Credit
Beginning	25000	Aug 20	110000
Aug 1	170000
					Salaries Expenses
Ending	85000				Debit		Credit
					Sep 20	30000
					Dec 31	6500
Merchandise Inventory
Debit		Credit
Beginning	10000	Aug 1	90000
Jul 1	100000				Supplies Expenses
					Debit		Credit
Ending	20000
Supplies
Debit		Credit
Beginning	200	Dec 31	1550
Jun 15	2200				Lease Expenses
					Debit		Credit
Ending	850				Dec 31	6750
Prepaid Leases
Debit		Credit
Apr 1	9000	Dec 31	6750
					Insurance Expenses
Ending	2250				Debit		Credit
					Dec 31	2100
Prepaid Insurance
Debit		Credit
Jun 1	3600	Dec-31	2100
					Incomet Tax Expenses
Ending	1500				Debit		Credit
					Dec 31	8971
Accoutns Payable
Debit		Credit
		Beginning	12000
Sep 1	85000	Jul 1	100000		Interest Expenses
					Debit		Credit
		Ending	27000		Dec 31	416
Salaries Payable
Debit		Credit
Sep 20	1000	Beginning	1000
		Dec 31	6500
		Ending	6500
Long Term Note payable
Debit		Credit
		Mar 1	10000
		Ending	10000
Interest Payable
Debit		Credit
		Dec 31	416
		Ending	416
Income Tax Payable
Debit		Credit
Nov 15	3675	Beginning	3675
		Dec 31	8971
		Ending	8971
Unearned Rent Revenue
Debit		Credit
Dec 31	3200	May 1	4800
		Ending	1600
Capital Stock
Debit		Credit
		Beginning	25000
		Jan 1	25000
		Ending	50000
Retained Earning
Debit		Credit
Dec 31-Dividend	9500	Beginning	28025
		Net Income-dec 31	26913
		Ending	45438
Dividends
Debit		Credit
Oct 20	9000	Retained Earning	9000

Adjusted Trial Balance
	Beginning		2018		Adjusted Trial		Post Closing Trial
Account	Debit	Credit	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$       34,500		$            5,825		$         40,325		$   40,325
Accounts Receivable	$       25,000		$         60,000		$         85,000		$   85,000
Merchandise Inventory	$       10,000		$         10,000		$         20,000		$   20,000
Supplies	$             200		$               650		$               850		$         850
Prepaid Leases			$            2,250		$            2,250		$      2,250
Prepaid Insurance			$            1,500		$            1,500		$      1,500
Accounts Payable		$          12,000		$         15,000		$         27,000		$   27,000
Salaries Payable		$            1,000		$            5,500		$            6,500		$      6,500
Income Tax Payable		$            3,675	$            3,675	$            8,971		$            8,971		$      8,971
Long Term Note Payable				$         10,000		$         10,000		$   10,000
Interest Payable				$               416		$               416		$         416
Unearned Rent Revenue				$            1,600		$            1,600		$      1,600
Capital Stock		$          25,000		$         25,000		$         50,000		$   50,000
Retained Earnings		$          28,025				$         28,025		$   45,438
Dividends			$            9,500		$            9,500
Sales Revenue				$       170,000		$       170,000
Rent Revenue				$            3,200		$            3,200
Cost of Goods Sold			$         90,000		$         90,000
Salaries Expense			$         36,500		$         36,500
Supplies Expense			$            1,550		$            1,550
Lease Expenses			$            6,750		$            6,750
Income Tax Expenses			$            8,971		$            8,971
Insurance Expenses			$            2,100		$            2,100
Interest Expenses			$               416		$               416
Total	$       69,700	$          69,700	$       239,687	$       239,687	$       305,712	$       305,712	$ 149,925	$ 149,925
Income Statement:
Sales revenue		$       170,000
Rent revenue		$            3,200
Total revenues		$       173,200
Less cost of goods sold		$          90,000
Gross margin		$          83,200
Less operating expenses:
Salaries Expense	$       36,500
Supplies Expense	$          1,550
Lease Expenses	$          6,750
Insurance Expenses	$          2,100
Interest Expenses	$             416
Total Operating Expenses:		$          47,316
Income before taxes		$          35,884
Less income taxes 25%		$            8,971
Net income		$          26,913
Earnings per share ( $26913 / 20,000 shares) $   1.35
Statement of Retained Earning:
Begingin Retained Earning		$          28,025
Add: Net Income		$          26,913
Less: Dividends		$            9,500
Ending Retained Earning		$          45,438