Smoky Mountain Company (SMC) started business at the beginning of 2013. In 2014, SMC hired Noah Counting, who had no prior accounting experience. Noah has asked for your help in finishing the 2014 financial statements.
SMC had the following information:
a, In 2014, SMC paid $180,000 for a 3-year insurance policy with coverage from January 1, 2014 to December 31, 2016. No adjusting entry was made on December 31.
b, SMC issued a note payable on July 1, 2014 for a $600,000 loan from First Bank. The 4-year, 10% note is due on June 30, 2018, with interest payable annually on June 30. No adjusting entry was made on December 31.
c, In 2014, SMC paid $50,000 in dividends.
d, Net income in 2013, SMC's first year of business, was $344,000. No dividends were paid.
Requirement 1: Noah computed the 2014 net income to be $320,000. Using the information above, determine the correct amount of 2014 net income by making any necessary adjustments to this amount. Ignore income taxes.Show all work and computations, including any necessary adjusting entries.
Requirement 2: Noah is unsure how to compute the December 31, 2014, retained earnings balance and planned to just "plug" the amount on the balance sheet. Determine the correct retained earnings balance at the end of 2014 using any relevant information above.