Adjusting and Closing Entries

 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.

Download the following trial balance for Smith Manufacturing, Inc. to assist in your preparation of the adjusting and closing entries.

Trial Balance

– Current Year

Trial Balance

50,000

(due in 10 months, 5%)

500,000

150,000

2,123,500

Smith Manufacturing, Inc.

December 31, 20XX

DR

CR

Cash

362,750

Accounts receivable

320,750

Allowance for uncollectible accounts

1

5,000

Prepaid insurance

10,000

Inventory

30,000

Land

50,000

Building

150,000

Accumulated depreciation-building

7,500

Equipment

500,000

Accumulated depreciation-equipment

Accounts payable

105,000

Note payable

125,000

Salaries payable

Interest payable

Note payable (due in 5 years, 3%)

Common Stock (3,000 shares outstanding)

300,000

Retained earnings

171,000

Sales revenue

850,000

Cost of goods sold

550,000

Salaries expense

Insurance expense

Depreciation expense

Interest expense

Bad debt expense

Totals

2,123,500

Trial Balnce – Prior Year

Smith Manufacturing, Inc.

December 31, 20XX
DR CR

Cash 15,000
Accounts receivable

Allowance for uncollectible accounts

Prepaid insurance 5,000
Inventory

Land 50,000
Building 150,000
Accumulated depreciation-building 7,500
Equipment 500,000
Accumulated depreciation-equipment 50,000

Accounts payable

Note payable 50,000
Salaries payable 5,000
Interest payable

Note payable (due in 5 years, 3%)

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

Post-Closing Trial Balance
225,750
20,000
80,000
55,000
17,250
350,000
	1,025,750

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