- Prepare journal entries to record external transactions.
- Post journal entries to general ledger T accounts.
- Prepare journal entries to record adjusting entries.
- Post the adjusting entries to the general ledger T accounts (include a balance on each account)
- Prepare an adjusted trial balance.
- Prepare, using good form, an income statement, a statement of stockholders’ equity, and a classified balance sheet.
- Prepare closing journal entries.
- Post the closing entries to the general ledger T accounts (include a balance on each account).
- Prepare a post-closing trial balance.
Company Information:
Smith Inc. provides printing services to customers. They began operations on January 1, 2019. In January 2020, they realized the current VP had not created the records in an accounting system, and due to a time issue, the financial information must be recorded by hand to produce GAAP based financials for the year ending 2019. As such, they have hired you as the Accountant to get the manual system completed before implementing software for 2020. The research begins:
First, you find the company uses straight-line depreciation for all long-term depreciable assets. They also must use the Allowance method to account for uncollectible accounts to be in line with GAAP. The company has decided to use the calendar year, so December 31 is the company’s year-end.
The company hired two employees on November 1, 2019, you will use the following for the November 27 and December 27 entries. The employees will receive a salary of $2,000 each (4,000 in total). Payroll is processed on the 27th of the month creating the employee and the employer taxes and then net pay is paid on the last day of each month.
Upon further investigation, you find the following information related to the company’s transactions during 2019. Process the information and produce GAAP based financials for Smith, Inc. for the year ending December 31, 2019.
Smith Inc. engaged in the following transactions in 2019.
|
Jan 1 |
The owner invested $100,000 into the company in exchange for 5,000 shares of no-par common stock. |
|
Jan 1 |
Purchased a computer system for $40,000. |
|
Jan 14 |
Purchased $1,200 of supplies on account. |
|
Feb 25 |
Invoiced clients for services provided on account, $36,000. |
|
Mar 31 |
Paid rent for two years, $19,200. |
|
April 1 |
The company borrowed $50,000 from Bank of America. |
|
May 14 |
Collected $11,500 on account. |
|
June 1 |
Purchase a delivery van to delivery copies to customers, the van had a purchase price of $53,000, taxes on the van were $5,000 and document charges of $1,500 were paid. |
|
July 31 |
Paid $800 on account for supplies purchased on January 14. |
|
Aug 10 |
Received cash for services provided, $10,200. |
|
Sept 1 |
Paid utilities of $4,000. |
|
Oct 1 |
Received $30,000 in advance for services to be provided in the future. |
|
Nov 15 |
Paid for an ad in the local newspaper, $1,500. |
|
Nov 27 |
Processed employee payroll and employer taxes, gross earnings were $4,000. |
|
Nov 30 |
Paid the employee salaries, taxes are not due until January. |
|
Dec 15 |
The company declared and paid $6,000 in dividends. |
|
Dec 30 |
Invoiced clients for services performed totaling $8,500. |
|
Dec 27 |
Processed employee payroll and employer taxes, gross earnings were $4,000. |
|
Dec 30 |
Paid the employee salaries, taxes are not due until January. |
Smith Inc. Chart of Accounts
|
Account Names |
|
|
Cash |
Common Stock |
|
Accounts Receivable |
Retained Earnings |
|
Allowance for Uncollectible Accounts |
Dividends |
|
Supplies |
Service Revenue |
|
Prepaid Rent |
Advertising Expense |
|
Equipment-Computer |
Utilities Expense |
|
Accumulated Depreciation – Computer |
Salaries Expense |
|
Delivery Van |
Depreciation Expense |
|
Accumulated Depreciation – Delivery Van |
Rent Expense |
|
Interest Expense |
|
|
Accounts Payable |
Supplies Expense |
|
Interest Payable |
Bad Debt Expense |
|
Deferred Revenue |
|
|
Salaries Payable |
|
|
Notes Payable |
|
Adjusting Entries
The data below was gathered for the accountant to complete December 31 adjusting entries (use the journal below and post to the ledger (T accounts) on pages 5 and 6).
- At December 31, the Company had $300 of supplies on hand.
- The computer system purchased on January 1 has a five-year useful life and a $5,000 anticipated salvage value.
- The delivery van purchased on June 1 has a ten-year useful life and a $5,500 anticipated salvage value.
- 3% of the ending balance in the accounts receivable account is estimated to become uncollectible.
- The prepaid rent paid on March 31 was for two years beginning April 1.
- The $50,000 borrowed from Bank of America on April 1 was a 5 year note with a 6% rate of interest. Principal is due in 4 years, interest is paid annually on April 1.
- The $30,000 received on October 1 was for services that would be completed equally over 24 months beginning October 1.
