Smith Manufacturing, Inc. has asked that you assist with some bookkeeping servic

Question

Smith Manufacturing, Inc. has asked that you assist with some bookkeeping services. The company is nearing year-end and needs help to prepare adjusting and closing entries. Following is the information that you need to prepare the entries:

Bad debts are estimated at 1% of Net Sales.

There is an $8,000 balance of unexpired insurance in the Prepaid Insurance account.

A physical inventory determined that there is $40,000 balance in inventory.

Buildings are depreciated on a straight-line basis over 20 years, no salvage value.

Equipment is depreciated on a straight-line basis over ten years, no salvage value.

All interest remained unpaid at year-end.

There was $2,000 in salaries payable at year-end.

TRIAL BALANCE Current Year:

         2,123,500

TRIAL BALANCE - Prior Year

Smith Manufacturing, Inc. Trial Balance December 31, 20XX DR CR Cash              362,750 Accounts receivable              320,750 Allowance for uncollectible accounts                15,000 Prepaid insurance                10,000 Inventory                30,000 Land                50,000 Building              150,000 Accumulated depreciation-building                  7,500 Equipment              500,000 Accumulated depreciation-equipment                50,000 Accounts payable              105,000 Note payable (due in 10 months, 5%)              125,000 Salaries payable Interest payable Note payable (due in 5 years, 3%)              500,000 Common Stock (3,000 shares outstanding)              300,000 Retained earnings              171,000 Sales revenue              850,000 Cost of goods sold              550,000 Salaries expense              150,000 Insurance expense Depreciation expense Interest expense Bad debt expense Totals          2,123,500

         2,123,500

TRIAL BALANCE - Prior Year

Smith Manufacturing, Inc. Post-Closing Trial Balance December 31, 20XX DR CR Cash                    15,000 Accounts receivable                 225,750 Allowance for uncollectible accounts                  20,000 Prepaid insurance                      5,000 Inventory                    80,000 Land                    50,000 Building                 150,000 Accumulated depreciation-building                     7,500 Equipment                 500,000 Accumulated depreciation-equipment                  50,000 Accounts payable                  55,000 Note payable                  50,000 Salaries payable                     5,000 Interest payable                  17,250 Note payable (due in 5 years, 3%)                350,000 Common Stock (3,000 shares outstanding)                300,000 Retained earnings                171,000 Sales revenue Cost of goods sold Salaries expense Insurance expense Depreciation expense Interest expense Bad debt expense Totals              1,025,750            1,025,750

Explanation / Answer

Adjusting entries Bad Debts Expense Dr 8500          Allowance for uncollectible accounts Cr 8500 ( 850000 * 1%) Insurance expense Dr 2000              Prepaid Insurance Cr 2000 (10000-8000) Inventory Dr 10000           Cost of goods sold Cr 10000 (40000 - 30000) Depriciation expenses Dr 57500                         Accumulated depriciation - Building Cr 7500                         Accumulated depriciation - Equipment Cr 50000 ( Building 150000/20 , equipment 500000/10) Interest expense Dr 21250                Interest payable Cr 21250 (125000*5% + 500000*3%) Salaries expense Dr 2000                Salary payable Cr 2000 unadjusted balance Adjusting entries closing balance Trial balance Dr Cr Dr Cr Dr Cr Cash 362750 362750 Accounts receivable 320750 320750 Allowance for uncollectible accounts 15000 8500 23500 Prepaid Insurance 10000 2000 8000 Inventory 30000 10000 40000 Land 50000 50000 Building 150000 150000 Accumulated depriciation - building 7500 7500 15000 Equipment 500000 500000 Accumulated depriciation - equipment 50000 50000 100000 Accounts payable 105000 105000 Note Payable ( due in 10 months , 5%) 125000 125000 Salaries payable 2000 2000 Interest Payable 21250 21250 Note Payable ( due in 5 years , 3%) 500000 500000 Common stock 300000 300000 Retained earnings 171000 171000 Sales revenue 850000 850000 Cost of goods sold 550000 10000 540000 Salaries Expenses 150000 2000 152000 Insurance expenses 2000 2000 Depriciation expense 57500 57500 Interest expense 21250 21250 Bad Debt expense 8500 8500 2123500 2123500 101250 101250 2212750 2212750 closing entries Sales revenue Dr 850000               Income statement Cr 850000 Income statement Dr 781250          Cost of goods sold Cr 540000          Salaries Expenses Cr 152000         Insurance expenses Cr 2000        Depriciation expense Cr 57500        Interest expense Cr 21250        Bad Debt expense Cr 8500 Income statement Dr 68750                Retained earnings Cr 68750

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