1. ABC was formed by an investor who exchanged 2,000,000 for 100,000 shares of stock on August 1. ABC prepaid 12 months of rent by paying $96,000. ABC hired 3 employees and agreed to pay each $100,000/year.ABC agreed to pay on the first of each month after the services are performed. ABC withholds 20% for federal tax; 5% for state tax; and 7.65% for FICA.ABC sold services over the year for $1,200,000 on account. They warranty their work for 1 year. ABC estimated 1% for bad debts using the percent of sales method. ABC estimated $100,000 in warranty work, but only paid out $20,000 (as cash back) in warranties through the end of the year.ABC received $400,000 in cash against the receivable by year-end.

On 8/15 ABC purchased equipment signing a note for $300,000. ABC depreciated the equipment by $30,000 for book purposes and $50,000 for tax purposes. ABC accrued $5,000 in interest expense.

On 8/1 ABC invested $100,000 into muni-bonds. The bonds were valued at 102,000 by year-end and paid $7,000 in interest.

ABC provides a pension plan for the employees. The service cost for the year was $5,000, the interest cost was $500. ABC contributed 100% of the cost of the plan by contributing $5,500 to the retirement fund. The pension plan assets increased in value by $1,000 by year-end.

ABC paid a dividend of $50,000 in cash. Tax rate is 21%. Prepare income statement, balance sheet, and closing entry.