Question

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	$	3
Accounts Receivable		5
Supplies		12
Land		0
Equipment		58
Accumulated Depreciation				$	6
Software		16
Accumulated Amortization					7
Accounts Payable					5
Notes Payable (short-term)					0
Salaries and Wages Payable					0
Interest Payable					0
Income Tax Payable					0
Common Stock					68
Retained Earnings					8
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	$	94		$	94

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

1. Borrowed $12 cash on March 1 using a short-term note.
2. Purchased land on March 2 for future building site; paid cash, $9.
3. Issued additional shares of common stock on April 3 for $26.
4. Purchased software on July 4, $10 cash.
5. Purchased supplies on account on October 5 for future use, $18.
6. Paid accounts payable on November 6, $13.
7. Signed a $25 service contract on November 7 to start February 1, 2019.
8. Recorded revenues of $156 on December 8, including $38 on credit and $118 collected in cash.
9. Recognized salaries and wages expense on December 9, $83 paid in cash.
10. Collected accounts receivable on December 10, $22.

Data for adjusting journal entries as of December 31:

11. Unrecorded amortization for the year on software, $7.
12. Supplies counted on December 31, 2018, $10.
13. Depreciation for the year on the equipment, $6.
14. Interest of $1 to accrue on notes payable.
15. Salaries and wages earned but not yet paid or recorded, $12.
16. Income tax for the year was $8. It will be paid in 2019
    1. Set up T-accounts for the accounts on the trial balance. Enter beginning balances and post the transactions (a)-(j), adjusting entries (k)-(p), and closing entry. (Enter your answers in thousands of dollars.)
    2. Prepare an unadjusted trial balance. (Enter your answers in thousands of dollars)
    3. Record the adjusting journal entries (k) through (p). (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in thousands of dollars.)
    4. Post the adjusting entries from requirement 4 and prepare an adjusted trial balance. (Enter your answers in thousands of dollars.)

    5. Prepare an income statement.6-b. Prepare the statement of retained earnings.6-c. Prepare the balance sheet.

    6. Prepare the closing journal entry. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field. Enter your answers in thousands of dollars.)

    7. Post the closing entry from requirement 7 and prepare a post-closing trial balance. (Enter your answers in thousands of dollars.)

    8. How much net income did H & H Tool, Inc., generate during 2018? What was its net profit margin?9-b. Is the company financed primarily by liabilities or stockholders’ equity?9-c. What is its current ratio?

Answer 1

H & H Tool, Inc. (Amount in '000) Journal Enteries Date Particulars 1.3.2018 Cash a/c Dr. To Note Payable (Being Note Payable issued) Debit in $Credit in $ 12 12 2.3.2018 9 Land a/c Dr. To Cash (Being Land purchased in cash) 9 118 381 8.12.2018 Cash a/c Dr. Accounts Receivable a/c Dr. To service revenue (Being Revenue earned in cash and credit) 156 3.4.2018 26 Cash a/c Dr. To Common Stock (Being Common Stock issued for cash) 26 83 9.12.2018 Salaries and wages expense a/c Dr. To Cash (Being salaries and wages paid in cash) 83 22 10.12.2018 Cash a/c Dr. To Accounts Receivable (Being Cash received from debtors) 22 4.7.2018 10 Software a/c Dr. To Cash (Being Software purchased for cash) 10 13 6.11.2018 Accounts Payable a/c Dr. To Cash (Being Accounts Payable paid in cash) 13 18 5.10.2018 Supplies a/c Dr. To Accounts Payable (Being Supplies purchased on account) 18

Adjusting Enteries Date Particulars Debit in $ Credit in $ 31.12.2018 Amortization on software a/c Dr. To accumulated amortization (Being amortization of software charged to Software) 7 Dr. 20 31.12.2018 Supplies Expense a/c To Supplies (Being Supplies expense charged to Supplies) 20 6 31.12.2018 Depreciation a/c Dr. To accumulated depreciation (Being Depreciation on equipment charged to Equip.) 6 Dr. 1 31.12.2018 Interest Expense a/c To Interest Payable (Being Interest accrued on Note Payable) 1 12 31.12.2018 Salaries and wages expense a/c Dr. To Salaries and wages payable (Being Salary Expense accrued) 12 Dr. 8 31.12.2018 Income tax expense a/c To Income Tax Payable (Being Income tax accrued) 8 6 Closing Enteries Date Particulars Debit in $Credit in $ 31.12.2013 Income Summary a/c Dr. 137 To Salaries and wages expense 95 To Depreciation Expense To Amortization Expense To Income tax expense To Interest Expense To Supplies Expense 20 (Being expense accounts closed 7 8 1 156) 31.12.2013 Service Revenue a/c Dr. To Income Summary Being Revenue accounts closed 156 19 31.12.2013 Income Summary a/c Dr. To Retained Earnings (Being Income summary closed) 19

156 Amounts in $ Amounts in $ 95 Statement of Income For the period ending 31.12.2018 Service revenue Less: Salaries and wages expense Depreciation Expense Amortization Expense Income tax expense Interest Expense Supplies Expense Net Income 10 12 6 7 12 8 Balance sheet As at 31.12.2018 Assets Amounts in $ Amounts in $ Liabilities Current Assets Current Liabilities Cash 66 Accounts Payable Accounts Receivable 21 Notes Payable (short term) Supplies 10 97 Salaries and wages payable Interest Payable Non Current Assets Income Tax Payable land 9 Equipment 58 Shareholders equity Accumulated deprecia -12 46 Common Stock Software 26 Retained Earning Accumulated Amortiza -14 12 Total Assets 164 Total Liabilities & equity 1 1 8 43 20 137 19 94 27 121 Statement of Retained Earnings For the period ending 31.12.2018 1.1.2018 8 164 Net Income 19 27

Notes Payable (short term) Cash 9 12 83 Bal 12 Bal. Notes Payable (shor Service revenue Common Stock Accounts Receivable 10 12 12 Cash 3 land 12 Salaries and wages ex 118 Software 26 Accounts Payable 22 Bal 181 13 66 Salaries and wages payable Salaries and wages e 12 12 16 181 Bal 12 12 Accounts Receivable 5 Cash Bal. 22 Interest Payable Interest Expense Service revenue 38 1 Bal 21 Bal 1 43 43 1 1 Income Tax Payable Income tax expense 20 8 Bal. Accounts Payable Supplies 12 Supplies Expense 18 Bal Bal 8 10 8 8 30 30 Common Stock Bal Land 83 Cash 9 Bal 109 Cash 26 Bal 9 109 109 9 9 Equipment 7 Retained Earning Bal 26 Income Summary 26 Bal. 58 Bal 19 Bal 58 26 58 58 6 Accumulated depreciation Bal 12 Depreciation Expense 12 Bal. 6 12 Software 16 Bal. Cash 10 Bal 26 26 26 6 Accumulated Amortization Bal. 13 Amortization Expense 13 Bal 7 13 Cash 5 Accounts Payable 13 Bal. Supplies 10 18 Bal 23 23 23