Question

In: Accounting

9. Brothers Harry and Herman Hausyerday began operations of their machine shop (H & H Tool,...

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:

  1. Unrecorded amortization for the year on software, $7.
  2. Supplies counted on December 31, 2018, $12.
  3. Depreciation for the year on the equipment, $5.
  4. Interest of $1 to accrue on notes payable.
  5. Salaries and wages earned but not yet paid or recorded, $13.
  6. 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?

Solutions

Expert Solution

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:


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