Question

CLUuring Cycle exercise Questions 1 - 9 of 9) ► Save & E [The following information applies to the questions displayed below.] Brothers Harry and Herman Hausyerday began operations of their machine shop (H & H Tool, Inc.) on January 1, 2013. The annual reporting period ends December 31. The trial balance on January 1, 2015, follows the amounts are rounded to thousands of dollars to simplify): Account Titles Debit Credit Cash $ 4 Accounts Receivable 4 Supplies Land Equipment Accumulated Depreciation Software Accumulated Amortization Accounts Payable Notes Payable (short-term) Salaries and Wages Payable Interest Payable Income Tax Payable Common Stock Retained Earnings Service Revenue Salaries and Wages Expense Depreciation Expense Amortization Expense Income Tax Expense Interest Expense Supplies Expense Totals $92 $92 Transactions during 2015 (summarized in thousands of dollars) follow: 1. Borrowed $13 cash on a six-month note payable dated March 1, 2015. 2. Purchased land for future building site; paid cash, $7. Earned revenues for 2015, $158, including $39 on credit and $119 collected in cash. 4. Issued additional shares of stock for $2. 5. Recognized salaries and wages expense for 2015, $84 paid in cash. 6. Collected accounts receivable, $23. 7. Purchased software, $12 cash. 8. Paid accounts payable, $14. 9. Purchased supplies on account for future use. $17. 10.Signed a $30 service contract to start February 1, 2016. Data for adjusting journal entries: 11. Unrecorded amortization for the year on software, $6. 12.Supplies counted on December 31, 2015, $11. 13.Depreciation for the year on the equipment, $7. 14.Accrued interest of $2 on notes payable. 15. Salaries and wages earned but not yet paid or recorded, $12. 16.Income tax for the year was $9. It will be paid in 2016.

Set up T-accounts for the accounts on the trial balance. Enter beginning balances and post the transactions 1-10, adjusting entries 11-16, and closing entry. (Enter your answers in thousands of dollars)

Answer 1

H & H Tool, Inc. (Amount in '000) Debit in $ Credit in $ Journal Enteries Date Particulars 1.3.2015 Cash a/c Dr. To Note Payable (Being Note Payable issued) 2.3.2015 Land a/c Dr,. To Cash (Being Land purchased in cash) 8.12.2015 Cash a/c Dr. Accounts Receivable a/c Dr. To service revenue (Being Revenue earned in cash and credit) 3.4.2015 Cash a/c Dr. To Common Stock (Being Common Stock issued for cash) 9.12.2015 Salaries and wages expense a/c Dr. To Cash (Being salaries and wages paid in cash) 84 10.12.2015 Cash a/c Dr. To Accounts Receivable (Being Cash received from debtors) 4.7.2015 Software a/c Dr. To Cash (Being Software purchased for cash) 12 6.11.2015 Accounts Payable a/c Dr. To Cash (Being Accounts Payable paid in cash) 14 5.10.2015 Supplies a/c Dr. To Accounts Payable (Being Supplies purchased on account)

Adjusting Enteries Date Particulars Debit in $ Credit in $ 31.12.2015 Amortization on software a/c Dr. To accumulated amortization |(Being amortization of software charged to Software) 31.12.2015 Supplies Expense a/c Dr. To Supplies (Being Supplies expense charged to Supplies) 17 Dr. 31.12.2015 Depreciation a/c To accumulated depreciation |(Being Depreciation on equipment charged to Equip.) 7 31.12.2015 Interest Expense a/c Dr. To Interest Payable |(Being Interest accrued on Note Payable) 31.12.2015 Salaries and wages expense a/c Dr. To Salaries and wages payable (Being Salary Expense accrued) Dr. 31.12.2015 Income tax expense a/c To Income Tax Payable (Being Income tax accrued) Closing Enteries Date Particulars Debit in $ Credit in $ 31.12.2015 Income Summary a/c Dr. 137 To Salaries and wages expense 96 To Depreciation Expense To Amortization Expense To Income tax expense To Interest Expense To Supplies Expense (Being expense accounts closed 31.12.2015 Service Revenue a/c Dr. To Income Summary Being Revenue accounts closed 158 31.12.2015 Income Summary a/c Dr. To Retained Earnings (Being Income summary closed)

Adjusted Trial Balance For the period ending 31.12.2015 Particulars Unadjusted Adjustment Adjusted Post Closing Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ Debit in $ Credit in $ 44 Cash 17 26 Accounts Receivable Supplies Land Equipment Accumulated depreciation Software Accumulated Amortization Accounts Payable Notes Payable (short term) Salaries and wages payable Interest Payable Income Tax Payable Common Stock Retained Earning Service revenue Salaries and wages expense Depreciation Expense Amortization Expense Income tax expense Interest Expense Supplies Expense Totals 68 158 158 84 268 268 5 3 53 304 304 167 167 Net Income Net profit margin = Net Income / Sales = 21/ 158 = 13.29% Debt to Equity = Total Liabilities/Total Equity = 45/96 = 46.88% Since debt equity ratio is 46.88% the company is primarily financed by Equity Current Ratio = Current Assets / Current Liabilities = 75/45 = 1.67

158 Statement of Income For the period ending 31.12.2015 Service revenue Less: Salaries and wages expense Depreciation Expense Amortization Expense Income tax expense Interest Expense Supplies Expense Net Income 137 Statement of Retained Earnings For the period ending 31.12.2015 1.1.2015 Net Income

Amounts in $ Amounts in $ Balance sheet As at 31.12.2015 Assets Amounts in $ Amounts in $ Liabilities Current Assets Current Liabilities Cash Accounts Payable Accounts Receivable Notes Payable (short term) Supplies 75 Salaries and wages payable Interest Payable Non Current Assets Income Tax Payable land Equipment Shareholders equity Accumulated deprecia 45 Common Stock Software Retained Earning Accumulated Amortiza -12 14 Total Assets 141 Total Liabilities & equity 45 96 141

Notes Payable (short term) Cash Bal. 13 Cash 4 land 13 Salaries and wages ex 119 Software 2 Accounts Payable 23 Bal Notes Payable (shor Service revenue Common Stock Accounts Receivable 13 Salaries and wages payable Salaries and wages e 12 161 Bal Accounts Receivable 4 Cash Bal. Service revenue Interest Payable Interest Expense Bal 43 INI Income Tax Payable Income tax expense 9 Bal. Accounts Payable Supplies 11 Supplies Expense 17 Bal 28 Bal Land 66 Common Stock Bal 68 Cash 68 Bal. Bal 2 Bal 68

Equipment Retained Earning Bal 28 Income Summary Bal. 59/ Bal 21 28 Bal 59 Accumulated depreciation Bal 14 Depreciation Expense 14 Bal. Software Bal. Cash 12 Bal 26 26 Accumulated Amortization Bal. 12 Amortization Expense Bal Cash Accounts Payable 14 Bal. Supplies Bal