Question

9.

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	$	2
Accounts Receivable		6
Supplies		13
Land		0
Equipment		67
Accumulated Depreciation				$	5
Software		21
Accumulated Amortization					7
Accounts Payable					4
Notes Payable (short-term)					0
Salaries and Wages Payable					0
Interest Payable					0
Income Tax Payable					0
Common Stock					84
Retained Earnings					9
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	$	109		$	109

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

1. Borrowed $11 cash on March 1 using a short-term note.
2. Purchased land on March 2 for future building site; paid cash, $8.
3. Issued additional shares of common stock on April 3 for $30.
4. Purchased software on July 4, $11 cash.
5. Purchased supplies on account on October 5 for future use, $19.
6. Paid accounts payable on November 6, $12.
7. Signed a $20 service contract on November 7 to start February 1, 2019.
8. Recorded revenues of $174 on December 8, including $47 on credit and $127 collected in cash.
9. Recognized salaries and wages expense on December 9, $92 paid in cash.
10. Collected accounts receivable on December 10, $31.

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, $12.
13. Depreciation for the year on the equipment, $5.
14. Interest of $1 to accrue on notes payable.
15. Salaries and wages earned but not yet paid or recorded, $13.
16. Income tax for the year was $7. 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?

Answer 1

Ques 9-a
Net income	29
Net profit margin	16.67%
(29/174)	or
	17%
Ques 9-b
From stockholders equity because we can
see that stockolders equity is 152 as compared to
liabilities of 43
Ques 9-c
Current Assets	$        112
Current liabilities	$          43
current ratio	2.60
112/43

Workings: