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.

View: Course Project Financial Reporting I - Spring 2020.pdf

You are also given the following information that summarizes the business activity for the current year,2019

a.	Issued 10,000 additional shares of common stock for $25,000 cash on January 1st.
b.	Borrowed $10,000 on March 1, 2019, 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, 2020.
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 2019.
l.	Dividends for $9,500 were paid on October 20th.
m.	The income taxes payable for the year 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 (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 2019. The corporate tax rate is 25% of the income before income taxes.

Assignment Summary

On a spreadsheet, perform the following tasks using the information from SMC, Inc. provided above:

1. Journalize the transactions for the current year, 2019, using the accounts listed on the financial statements and other appropriate accounts.
2. Set up T-accounts and enter the beginning balances from the December 31, 2018, post-closing trial balance for SMC. Post all current year journal entries to the T-accounts.
3. Journalize and post any necessary adjusting entries at the end of 2018. (Hint: Items b, c, d, e, o, p, and q require adjustment.)
4. After the adjusting entries are posted, prepare the following:
   • an adjusted trial balance,
   • an income statement,
   • statement of retained earnings, and
   • a balance sheet for 2019.

The format of your statements should mirror those prepared by the company in 2018.

5. Journalize and post-closing entries for 2019 and prepare a post-closing trial balance.
6. Compute the Current Ratio and Debt to Total Equity Ratio for 2018 and 2019.

Answer 1

Financial Statements of SMC Inc. as on year ending 2019 are as follows:

b. Principal 10000 Interest rate 5% Maturity term 10 months Interest - Principal*Interest*Frequency 10000*5*10 5,00,000 1 Current Ratio Current Assets / Current Liabilities
Credit ($) 5,00,000 4,800 SMC Inc. 2019 Trial Balance for the year ending 2019: Particulars Debit ($) Stock on January 1st 25,000 Long term loan payable Paid cash on April 1st 9,000 Received rent on May 1st Paid Insurance policy on June 01st 3,600 Purchases on June 15th 2,200 Inventory purchased on July 01st 1,00,000 Sold Inventory on August 1st 1,70,000 Goods sold 90,000 Cash collected from customers August 20th Purchased Inventories on Sept 01st 85,000 Salaries paid on September 20th 32,000 Dividends paid on October 20th 9,500 Income Tax paid 89,350 Stock in hand Total 6,15,650 1,10,000 850 6,15,650
SMC Inc. 2019 Balance Sheet for the year ending 2019 Liabilities Salaries Payable Income Tax Insurance Policy Loan Dividends Amount ($) Assets 32,000 Accounts receivable 89,350 Inventory 3,600 Inventories 5,00,000 Cash 9,500 Stocks Stocks Inventory Rent Other receivables 6,34,450 Total Amount ($) 1,10,000 85,000 1,70,000 9,000 25,000 850 1,00,000 4,800 1,29,800 6,34,450 Total