90.2K

Verified Solution

Link Copied!

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 $31,2023$:

Assets $$44,500$

Cash $$28,000$

Accounts receivable $$15,000$

Supplies $$700$

Total assets $$88,200$

Liabilities and stockholders equity

Liabilities:

Accounts payable $$14,000$

Salaries payable $$2,500$

Income taxes payable $$3,275$

Total liabilities $$19,775$

Stockholders equity:

Capital stock $(10,000$ shares outstanding$)$ $$35,000$

Retained earnings $$33,425$

Total stockholders equity $$68,425$

Total liabilities and stockholders equity $$88,200$

SMC$,$ Inc.

Income statement:

For the year ended December $31,2023$

Sales revenue $$110,000$

Rent revenue $$1,000$

Total revenue $$111,000$

Less cost of goods sold $$60,000$

Gross profit $$51,000$

Less operating expense:

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\mathrm{.}08$

SMC$,$ Inc.

Post$-$closing trial balance, December $31,2023$:

Cash: Debit: $$44,500$

Accounts receivable: Debit: $$28,000$

Inventory: Debit: $$15,000$

Supplies: Debit: $$700$

Accounts payable: Credit: $$14,000$

Salaries payable: Credit: $$2,500$

Income taxes payable: Credit: $$3,275$

Common stock: Credit: $$35,000$

Retained earnings: Credit: $$33,425$

Totals: Debit: $$88,200$ Credit: $$88,200$

You are also given the following Information that summarizes the business activity for the current year, $2024.$

A$.$ Issued $10,000$ additional shares of common stock for $$60,000$ cash on January $1$st$.$

B$.$ Borrowed $$25,000$ on March $1,2024,$ from Downtown Bank as a long$-$term loan. The interest rate on the loan is $4\%$ and interest for the year is payable on January $1,2025.$

C$.$ Paid $$12,000$ cash on April $1$ to lease a building for one year.

D$.$ Received $$6,000$ on May $1$ from a tenant for one years rent.

E$.$ Paid $$4,200$ on June $1$ for a one year Insurance policy.

F$.$ Purchased $$3,500$ of supplies for cash on June $15$th

G$.$ Purchased inventory for $$125,000$ on account on July $1.$

H$.$ August $1,$ sold inventory for $$185,000$ on account; cost of the merchandise sold was $$120,000.$

I. Collected $$145,000$ cash from customers accounts receivable on August $20$th$.$

J$.$ September $1,$ paid $$95,000$ cash for inventories purchased earlier during the year.

K$.$ September $20$th paid $$34,000$ for sales reps salaries, including $$1,000$ owed at the beginning of $2024.$

L$.$ Dividends for $$9,500$ were paid on October $20$th$.$

M$.$ The income taxes payable for the year of $2023$ were paid on November $15$th$.$

N$.$ For adjusting entries, all prepaid expense are initially recorded as assets, and all unearned revenues are initially recorded as liabilities $($this is just informational$)$

O$.$ At year$-$end, $$1,050$ worth of supplies are on hand.

P$.$ At year$-$ end, an additional $$9,500$ of sales salaries are owed, but have not yet been paid.

Q$.$ Prepare and adjusting entry to recognize the taxes owed for $2024.$ The corporate tax rate is $21\%$ of the income before income taxes.

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

$1.$ Journalize the transactions for the current year, $2024,$ 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 $31,2023,$ 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 $2024.($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 $2024.$

The format of your statements should mirror those prepared by the company in $2023($doesn$\text{'}$t mean you will use the exact same account titles$).$

$5.$ Journalize and post$-$closing entries for $2024$ and prepare a post$-$closing trial balance.

$6.$ Compute the Current Ratio and Debt to Total Assets Ratio for $2023$ and $2024.$

$7.$ Interpretive Question: What is your overall assessment of the financial health of SMC$,$ Inc.?

Answer & Explanation Solved by verified expert

See Answer