SMC, Inc. Balance Sheet December 31, 2017 Assets Cash ..........................

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 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 ................................................................................................... Accounts Payable .................................................................................... 200 $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. What are Journal entries and post-closing entries for 2018 and prepare a post-closing trial balance. What is the current ratio and Debt to Total Asset Ratio for 2017 and 2018.

Explanation / Answer

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

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