SMC, Inc. Balance Sheet December 31, 2017 Assets Cash ......................................................................................................... $34,500 Accounts receivable ................................................................................ 25,000 Inventory .................................................................................................. 10,000 Supplies ................................................................................................... 200 Total assets.............................................................................................. $69,700 Liabilities and Stockholders Equity Liabilities: Accounts payable ............................................................................. $12,000 Salaries payable ............................................................................... 1,000 Income taxes payable ...................................................................... 3,675 Total liabilities.......................................................................................... $16,675 Stockholders equity: Capital stock (10,000 shares outstanding).................................... $25,000 Retained earnings ............................................................................ 28,025 Total stockholders equity ....................................................................... 53,025 Total liabilities and stockholders equity................................................ $69,700

SMC, Inc. Income Statement For the Year Ended December31,2017 Sales revenue .......................................................................................... $110,000 Rent revenue ........................................................................................... 1,000 Total revenues......................................................................................... $111,000 Less cost of goods sold........................................................................... 60,000 Gross profit ........................................................................................... $ 51,000 Less operating expenses: Supplies expense ............................................................................. $ 400 Salaries expense .............................................................................. 22,000 Miscellaneous expense................................................................... 4,100 26,500 Income beforetaxes................................................................................ $ 24,500 Less income taxes................................................................................... 3,675 Net income............................................................................................... $ 20,825 Earnings per share ( $20,825 / 10,000shares) $ 2.08

SMC, Inc. Post-Closing Trial Balance December 31, 2017 Debits: Cash ......................................................................................................... $34,500 Accounts Receivable............................................................................... 25,000 Inventory .................................................................................................. 10,000 Supplies ................................................................................................... 200 Credits: Accounts Payable.................................................................................... $12,000 Salaries Payable ...................................................................................... 1,000 Income TaxesPayable............................................................................. 3,675 Common Stock............................................................................................ 25,000 Retained Earnings ................................................................................... 28,025 Totals........................................................................................................ $69,700 $69,70

a. Issued 10,000 additional shares of common stock for $25,000 cash on January 1st.

b. Borrowed $10,000 on March 1, 2016, 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 April1 to lease a building for one year.

d. Received $4,800 on May 1 from a tenant for one years 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.

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 an adjusted trial balance, an income statement, statement of retained earnings and a balance sheet for 2018. (Hint: Income before income taxes should equal xxxx). 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.?