Question

*Specifically looking for help with t-accounts and question 4, thank you!!*

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.

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.

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, 2018, 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, 2017, 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 2018.

The format of your statements should mirror those prepared by the company in 2017.

5. Journalize and post-closing entries for 2018 and prepare a post-closing trial balance.
6. Compute the Current Ratio and Debt to Total Equity Ratio for 2017 and 2018.
7. Interpretive Question: What is your overall assessment of the financial health of SMC, Inc.?

CASH ACCTS REC INVENTORY SUPPLIES You should use the first 24 t-accounts after recording your adjusting entries The Income Summary T Account should only be used during the closing entry process PREPAID INSURANCE PREPAID RENT NOTES PAYABLE ACCTS PAYABLE UNEARNED RENT SALARIES PAYABLE INC TAXES PAYABLE INTEREST PAYABLE COMMON STOCK RETAINED EARNINGS DIVIDENDS SALES REVENUE RENT REVENUE INTEREST EXPENSE SALARIES EXPENSE SUPPLIES EXPENSE

Answer 1

Cash Sales Revenue Debit Credit Debit Credit Aug 1 $ 170,000 Beginning Jan 1 Mar 1 1 May 1 Aug 20 $ $ $ $ $ 9,000 3,600 2,200 34,500 Apr 1 25,000 Jun 1 10,000 Jun 15 4,800 Nov 15 110,000 Sep 1 Sep 20 Oct 20 $ $ $ $ $ $ $ 3,675 9,500 85,000 31,000 Rent Revenue Debit Credit Dec 31 $ 3,200 Ending $ 40,325 Cost of Goods Sold Debit Credit Aug 1 $ 90,000 Credit Accounts Receivable Debit $ 25,000 Aug 20 $ 170,000 $ 110,000 Beginning Aug 1 Salaries Expenses Ending $ 85,000 Debit Credit Sep 20 Dec 31 $ $ 30,000 6,500 Merchandise Inventory Debit Credit $ 90,000 Beginning Jul 1 $ 10,000 Aug 1 $ 100,000 Supplies Expenses Debit Credit Ending $ 20,000 Dec 31 $ 1,550 Supplies Debit Credit $ 1,550 Beginning Jun 15 $ $ 200 Dec 31 2,200 Lease Expenses Debit Credit Ending $ 850 Dec 31 $ $ 6.750 Prepaid Leases Debit Credit Apr 1 $ 9,000 Dec 31 $ 6,750 Insurance Expenses Ending $ 2,250 Debit Credit Dec 31 $ 2,100

Prepaid Insurance Debit Credit Dec-31 $ Jun 1 $ 3,600 2,100 Incomet Tax Expenses Ending $ 1,500 Debit Credit Dec 31 $ 8,971 Accoutns Payable Debit Credit Beginning 85,000 Jul 1 $ 12,000 $ 100,000 Sep 1 $ Interest Expenses Debit Credit Ending $ 27,000 Dec 31 $ 417 Salaries Payable Debit Credit Sep 20 $ 1,000 Beginning Dec 31 $ $ 1,000 6,500 Income Summary Credit Ending $ 6,500 Debit Dec 31 Dec 31 Dec 31-Retained Earning Long Term Note payable $ 170,000 Dec 31 $ 3,200 Dec 31 $ 26,912.33 Dec 31 Dec 31 Dec 31 Dec 31 90,000 36,500 1,550 6,750 8,971 Debit $ $ $ $ $ $ $ Credit Mar 1 $ 10,000 2,100 417 Ending $ 10,000 Dec 31 Interest Payable Debit Credit Dec 31 $ 417 Ending $ 417 Income Tax Payable Debit Credit Nov 15 $ 3,675 Beginning Dec 31 $ $ 3,675 8,971 Ending $ 8,971 Unearned Rent Revenue Credit Debit Dec 31 $ 3,200 May 1 $ 4,800 Ending $ 1,600

Capital Stock Debit Credit 25,000 Beginning Jan 1 $ $ 25,000 Ending $ 50,000 Debit Dec 31-Dividend Retained Earning Credit 9,500 Beginning Net Income-dec 31 $ $ 28,025 26,913 S Ending $ 45,438 Debit Dividends Credit 9,500 Retained Earning Oct 20 $ $ 9,500