Question

Brothers Mike and Tim Hargen began operations of their tool and die shop (H & H Tool, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2017, follows:

Account Titles	Debit				Credit
Cash		12,000
Accounts receivable		11,000
Supplies		26,000
Land
Equipment		93,000
Accumulated depreciation (on equipment)						12,000
Other assets (not detailed to simplify)		7,000
Accounts payable
Wages payable
Interest payable
Income taxes payable
Long-term notes payable
Common stock (6,000 shares, $.50 par value)						3,000
Additional paid-in capital						95,000
Retained earnings						39,000
Service revenue
Depreciation expense
Supplies expense
Wages expense
Interest expense
Income tax expense
Remaining expenses (not detailed to simplify)
Totals		149,000				149,000

Transactions during 2017 follow:

1. Borrowed $20,000 cash on a 5-year, 6 percent note payable, dated March 1, 2017.
2. Purchased land for a future building site on March 15, 2017; paid cash, $18,000.
3. Earned $301,000 in revenue. Transactions dated August 30, 2017 , including $64,000 on credit and the rest in cash.
4. Sold 4,000 additional shares of capital stock for cash at $1 market value per share on January 1, 2017.
5. Incurred $143,000 in remaining expenses for 2017, invoices dated October 15, 2017, including $35,000 on credit and the rest paid in cash.
6. Collected accounts receivables on November 10, 2017, $39,000.
7. Purchased other assets on November 15, 2017, $13,000 cash.
8. Purchased supplies on account for future use on December 1, 2017, $38,000.
9. Paid accounts payable on December 15, 2017, $36,000.
10. Signed a three-year $44,000 service contract on December 17, 2017 to start February 1, 2018.
11. Declared and paid cash dividends on December 20, 2017, $36,000.

Data for adjusting entries:

12. Supplies counted on December 31, 2017, $29,000.
13. Depreciation for the year on the equipment, $14,000.
14. Interest accrued on notes payable (to be computed).
15. Wages earned by employees since the December 24 payroll but not yet paid, $16,000.
16. Income tax expense, $13,000, payable in 2018

1. Prepare journal entries for transactions (a) through (k). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

2. Prepare the adjusting entries for transactions (l) through (p). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

3. Post the journal entries for transactions (a) through (k) and adjusting entries for transactions (l) through (p) to the respective T-Accounts

4. Prepare an income statement (including earnings per share), statement of stockholders’ equity, and balance sheet. (For the Statement of Stockholders' Equity and Balance Sheet only, items to be deducted must be indicated with a minus sign. Round "Earnings per share" to 2 decimal places.)

5. Identify the type of transaction for (a) through (k) for the statement of cash flows (O for operating, I for investing, F for financing), and the direction and amount of the effect. (List cash outflows as negative amounts. For transactions with no effect, choose "NE".)

6. Prepare the closing entry on December 31, 2017. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. After recording this closing entry, post the entry to the General Ledger in Part (3).)

7-a. Compute the current ratio for 2017. (Round your answer to 2 decimal places.)

7-b. Compute the total asset turnover ratio for 2017. (Round your answer to 2 decimal places.)

7-c. Compute the net profit margin ratio for 2017. (Enter your answer as a percentage rounded to 1 decimal place (i.e. 0.123 should be entered as 12.3).)

Answer 1

1. In the books of H & H Tool Inc. :

Transaction / Event	Account Titles	Debit	Credit
		$	$
a.	Cash	20,000
	Notes Payable		20,000
b.	Land	18,000
	Cash		18,000
c.	Cash	237,000
	Accounts Receivable	64,000
	Service Revenue		301,000
d.	Cash	4,000
	Common Stock		2,000
	Additional Paid-in Capital		2,000
e.	Remaining Expenses	143,000
	Cash		108,000
	Accounts Payable		35,000
f.	Cash	39,000
	Accounts Receivable		39,000
g.	Other Assets	13,000
	Cash		13,000
h.	Supplies	38,000
	Accounts Payable		38,000
i.	Accounts Payable	36,000
	Cash		36,000
j.	No journal entry required	0	0
k.	Dividends	36,000
	Cash		36,000

2. Adjusting Entries:

Adjustment	Account Titles	Debit	Credit
December 31, 2017		$	$
l.	Supplies Expense	35,000
	Supplies		35,000
m.	Depreciation Expense	14,000
	Accumulated Depreciation : Equipment		14,000
n.	Interest Expense	1,000
	Interest Payable		1,000
o.	Wages Expense	16,000
	Wages Payable		16,000
p.	Income Tax Expense	13,000
	Income Taxes Payable		13,000

4. a.

H & H Tool Inc. Income Statement For the year ended December 31, 2017
	$	$
Service Revenue		301,000
Expenses:
Supplies Expense	35,000
Wages Expense	16,000
Depreciation Expense	14,000
Remaining Expense	143,000
Interest Expense	1,000
Total Expenses		209,000
Income before Taxes		92,000
Income Tax Expense		13,000
Net Income		79,000

4.b.

H & H Tool Inc. Statement of Retained Earnings For the year ended December 31, 2017
Balance, January 1	$ 39,000
Add: Net Income	79,000
Less: Dividends	(36,000)
Balance, December 31	$ 82,000

4 c.

H & H Tool Inc. Balance Sheet December 31, 2017
Assets
	$	$
Cash	101,000
Accounts Receivable	36,000
Supplies	29,000
Total Current Assets		166,000
Property, Plant and Equipment
Land	18,000
Equipment,net	67,000
Other Assets	20,000
Property, Plant and Equipment, net		105,000
Total Assets		$ 271,000
Liabilities
Accounts Payable	37,000
Wages Payable	16,000
Interest Payable	1,000
Income Taxes Payable	13,000
Total Current Liabilities		67,000
Long Term Liabilities
Notes Payable		20,000
Total Liabilities		87,000
Stockholders' Equity
Common Stock	5,000
Additional Paid-in Capital	97,000
Retained Earnings	82,000
Total Stockholders' Equity		184,000
Total Liabilities and Stockholders' Equity		$ 271,000