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

ID: 2577399 • Letter: A

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

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 December 31, 2017

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

Rent revenue ...........................................................................................   1,000

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

Less cost of goods sold...........................................................................      60,000

Gross margin ........................................................................................... $ 51,000

Less operating expenses:

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

December 31, 2017  

                                                                                                                    Debits                             Credits
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

Capital 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 capital stock for $45,000 cash on January 1st.

b. Borrowed $20,000 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 $7,200 cash on April1 to lease a building for one year.

d. Received $4,800 on May 1 from a tenant for one year’s rent.

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

f. Purchased $2,570 of supplies for cash on June 15th.

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

h. August 1, sold inventory for $165,000 on account; cost of the merchandise sold was $92,000.

i. Collected $105,000 cash from customers’ accounts receivable on August 20th.

j. September 1, Paid $80,000 cash for inventories purchased earlier during the year.

k. September 20th, paid $32,000 for sales reps’ salaries, including $1,000 owed at the beginning of 2016.

l. Dividends for $8,500 were paid on October 20th.

m. The income taxes payable at the beginning of 2018 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.

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

p. At year-end, an additional $9,100 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.

You are asked to do the following on an excel spreadsheet:

1. Journalize the transactions for the current year, 2018, using the accounts listed on the financial statements and other appropriate accounts .

Explanation / Answer

JOURNAL

Date

General Journal

Debit

Credit

a.

Cash

45000

       Capital stock

45000

b.

Cash

20000

      Long-term loan

20000

c.

Prepaid Lease

7200

       Cash

7200

d.

Cash

4800

      Unearned rent revenue

4800

e.

Prepaid Insurance

2400

        Cash

2400

f.

Supplies

2570

        Cash

2570

g.

Inventory

100000

       Accounts Payable

100000

h.

Account Receivable

165000

      Sales revenue

165000

Cost of goods sold

92000

         Inventory

92000

i.

Cash

105000

       Accounts Receivable

105000

j.

Accounts Payable

80000

        Cash

80000

k.

Salary expense

32000

Salary Payable

1000

      Cash

33000

l.

Dividends

8500

     Cash

8500

m.

Income tax payable

3675

      Cash

3675

n.

(1)

Interest expense

833

      Interest payable

833

(2)

Lease expense

       Prepaid lease

5400

5400

(3)

Unearned rent

3200

       rent revenue

3200

(4)

Insurance expense

1400

      Prepaid Insurance

1400

o.

Supplies expense

2170

         Supplies

2170

p.

Salary expense

9100

        Salary payable

9100

q.

Income tax expense

9142

         Income tax payable

9142

JOURNAL

Date

General Journal

Debit

Credit

a.

Cash

45000

       Capital stock

45000

b.

Cash

20000

      Long-term loan

20000

c.

Prepaid Lease

7200

       Cash

7200

d.

Cash

4800

      Unearned rent revenue

4800

e.

Prepaid Insurance

2400

        Cash

2400

f.

Supplies

2570

        Cash

2570

g.

Inventory

100000

       Accounts Payable

100000

h.

Account Receivable

165000

      Sales revenue

165000

Cost of goods sold

92000

         Inventory

92000

i.

Cash

105000

       Accounts Receivable

105000

j.

Accounts Payable

80000

        Cash

80000

k.

Salary expense

32000

Salary Payable

1000

      Cash

33000

l.

Dividends

8500

     Cash

8500

m.

Income tax payable

3675

      Cash

3675

n.

(1)

Interest expense

833

      Interest payable

833

(2)

Lease expense

       Prepaid lease

5400

5400

(3)

Unearned rent

3200

       rent revenue

3200

(4)

Insurance expense

1400

      Prepaid Insurance

1400

o.

Supplies expense

2170

         Supplies

2170

p.

Salary expense

9100

        Salary payable

9100

q.

Income tax expense

9142

         Income tax payable

9142

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