Question
CM Corporation (CMC) was founded in 2000 by Eric Conner and Phil Martin. The company designs, installs, and services security systems for high-tech companies. The
CM Corporation (CMC) was founded in 2000 by Eric Conner and Phil Martin. The company designs, installs, and services security systems for high-tech companies. The founders, who describe themselves as "entrepreneurial geeks," met in a computer lab when they were teenagers and found they had common interests in working on security systems for critical industries. In October 2020, CMC hired you as an accounting intern. Lately Conner and Martin have been working with radio frequency identification (RFID) technology. They have developed a detailed system designed to track inventory items using RFID tags embedded invisibly in products. This technology has numerous inventory applications in multiple industries. One of the most basic applications is tracking manufacturing components; if tagged components "go walking" (if employees attempt to take them), companies can easily track and find them. Conner and Martin have sold their system to several high-tech companies in the area. These companies have a number of government contracts that require extensive security systems to protect sensitive data from infiltration by terrorists and others. To date, CMCs cash flow from sales and services has adequately funded its operations. CMC anticipates growth potential for its products. As a result, it is planning to go to the market with a new common stock issue at the end of 2021. To familiarize you with the company's operations, Conner and Martin have provided an unadjusted trial balance from the end of 2020 on an Excel spreadsheet. They ask you to prepare the financial statements, i.e. the income statement, the balance sheet, the statement of cashflows and the statement of retained earnings for fiscal year ending on Dec 31,2020. You are also provided the following information for adjustments prior to closing the books 1. Wages earned by employees during December and to be paid in January are $33,875; associated payroll taxes on these wages are $2,710. 2. On July 1, a client paid CMC $205,720 in advance for a year of consulting services. 3. You discover that a product sale was made and recorded in December for $128,600; the product had not yet been shipped. The cost of the product was $68,742. 4. Bad debt expense has been calculated to be $17,508 but has not yet been recorded. 5. The Prepaid Expense account has a balance of $22,774. This balance includes $11,200 for a two-year insurance policy purchased on January 1, 2020. 6. Depreciation expense for the year is $82,620. 7. Interest expense accrued on its long-term liabilities is $7,765. 8. On December 15, CMC declared a dividend of $110,000, to be paid on January 15, 2021. 9. Income tax expense is $201,109.
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