A. J. Smith Company started business on January 1, 2020, and the following transactions occurred in its first year:

1. On January 1, the company issued 12,000 common shares at $25 per share.

2. On January 1, the company purchased land and a building from another company in exchange for $80,000 cash and 6,000 shares. The land’s value is approximately one-quarter of the total value of the transaction. You need to determine a value for the shares using the information given in transaction 1, and the land and building should be recorded in separate accounts.

3. On March 31, the company rented out a portion of its building to Frantek Company. Frantek is required to make quarterly payments of $7,500 on March 31, June 30, September 30, and December

31 of each year. The first payment, covering the period from April 1 to June 30, was received on March 31, and the other payments were all received as scheduled.

4. Equipment worth $120,000 was purchased on July 1, in exchange for $60,000 cash and a one-year note with a principal amount of $60,000 and an interest rate of 10%. No principal or interest payments were made during the year.

5. Inventory costing $250,000 was purchased on account. 

6. Sales were $300,000, of which credit sales were $250,000.

7. The inventory sold had a cost of $190,000.

8. Payments to suppliers totalled $205,000.

9. Accounts receivable totalling $200,000 were collected.

10. Operating expenses amounted to $50,000, all of which were paid in cash.

11. The building purchased in transaction 2 is depreciated using the straight-line method, with an estimated useful life of 20 years and an estimated residual value of $30,000.

12. The equipment purchased in transaction 4 is depreciated using the straight-line method, with an estimated useful life of 10 years and an estimated residual value of $5,000. Because the equipment was purchased on July 1, only a half year of depreciation is recognized in 2020.

13. Dividends of $20,000 were declared during the year, of which $5,000 remained unpaid at year end.

Required

a. Prepare journal entries for each of the transactions and adjustments listed in the problem.

b. Prepare the necessary T accounts and post the journal entries to them.

c. Prepare an adjusted trial balance.

d. Prepare the closing entries and post them to the T accounts.