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Brothers Harry and Herman Hausyerday began operations of their machine shop (H & H Tool, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2018, follows (the amounts are rounded to thousands of dollars to simplify):

Account Titles	Debit			Credit
Cash	$	4
Accounts Receivable		4
Supplies		11
Land		0
Equipment		56
Accumulated Depreciation				$	7
Software		17
Accumulated Amortization					4
Accounts Payable					6
Notes Payable (short-term)					0
Salaries and Wages Payable					0
Interest Payable					0
Income Tax Payable					0
Common Stock					68
Retained Earnings					7
Service Revenue		0
Salaries and Wages Expense		0
Depreciation Expense		0
Amortization Expense		0
Income Tax Expense		0
Interest Expense		0
Supplies Expense		0
Totals	$	92		$	92

Transactions and events during 2018 (summarized in thousands of dollars) follow:

1. Borrowed $13 cash on March 1 using a short-term note.
2. Purchased land on March 2 for future building site; paid cash, $7.
3. Issued additional shares of common stock on April 3 for $28.
4. Purchased software on July 4, $12 cash.
5. Purchased supplies on account on October 5 for future use, $17.
6. Paid accounts payable on November 6, $14.
7. Signed a $30 service contract on November 7 to start February 1, 2019.
8. Recorded revenues of $152 on December 8, including $36 on credit and $116 collected in cash.
9. Recognized salaries and wages expense on December 9, $81 paid in cash.
10. Collected accounts receivable on December 10, $20.

Data for adjusting journal entries as of December 31:

11. Unrecorded amortization for the year on software, $4.
12. Supplies counted on December 31, 2018, $11.
13. Depreciation for the year on the equipment, $7.
14. Interest of $2 to accrue on notes payable.
15. Salaries and wages earned but not yet paid or recorded, $13.
16. Income tax for the year was $9. It will be paid in 2019.

1. 9-a. How much net income did H & H Tool, Inc., generate during 2018? What was its net profit margin?

2. 9-b. Is the company financed primarily by liabilities or stockholders’ equity?

3. 9-c. What is its current ratio?

Is the company financed primarily by liabilities or stockholders’ equity?

	Stockholders' Equityradio button unchecked1 of 2 Liabilitiesradio button unchecked2 of 2

What is its current ratio? (Enter your answers in thousands of dollars.)

	Current Ratio Numerator = = Denominator

Answer 1

9-a. :

Income Statement For the year ended December 31, 2018
Service Revenue		$ 152
Expenses
Salaries and Wages Expense	94
Depreciation Expense	7
Amortization Expense	4
Supplies Expense	17
Interest Expense	2
Income Tax Expense	9
Total Expenses		133
Net Income		19

Net income generated during 2018: $ 19

Net profit margin = $ 19 / $ 152 * 100 = 12.5 %

9-b. :

Balance Sheet December 31, 2018
Assets	$	Liabilities and Stockholders' Equity	$
Cash	67	Accounts Payable	9
Accounts Receivable	20	Salaries Payable	13
Supplies	11	Income Taxes Payable	9
Total Current Assets	98	Interest Payable	2
Land	7	Note Payable ( Short-Term )	13
Equipment,net	42	Total Current Liabilities	46
Software, net	21	Common Stock	96
		Retained Earnings	26
		Total Stockholders' Equity	122
	168		168

9-b: As Total Stockholders Equity exceeds Total Liabilities, the company is primarily financed by stockholders equity.

9-c. : Current Ratio = Total Current Assets / Total Current Liabilities = $ 98 / $ 46 = 2.13 : 1