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	$	4
Accounts Receivable		4
Supplies		11
Land		0
Equipment		53
Accumulated Depreciation				$	7
Software		20
Accumulated Amortization					7
Accounts Payable					6
Notes Payable (short-term)					0
Salaries and Wages Payable					0
Interest Payable					0
Income Tax Payable					0
Common Stock					65
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:

a. Borrowed $13 cash on March 1 using a short-term note.

b. Purchased land on March 2 for future building site; paid cash, $7.

c. Issued additional shares of common stock on April 3 for $31.

d. Purchased software on July 4, $12 cash.

e. Purchased supplies on account on October 5 for future use, $17.

f. Paid accounts payable on November 6, $14.

g. Signed a $30 service contract on November 7 to start February 1, 2019.

h. Recorded revenues of $146 on December 8, including $33 on credit and $113 collected in cash.

i. Recognized salaries and wages expense on December 9, $78 paid in cash.

j. Collected accounts receivable on December 10, $17.

Data for adjusting journal entries as of December 31:

k. Unrecorded amortization for the year on software, $7.

l.Supplies counted on December 31, 2018, $11.

m. Depreciation for the year on the equipment, $7.

n. Interest of $2 to accrue on notes payable.

o. Salaries and wages earned but not yet paid or recorded, $13.

p. Income tax for the year was $9. It will be paid in 2019.

5. Prepare an adjusted trial balance. (Enter your answers in thousands of dollars.)

6-a. Prepare an income statement.

6-b. Prepare the statement of retained earnings.

6-c. Prepare the balance sheet.

7. 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.)

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

9-a. 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

5. Adjusted trial balance is as prepared below:

H&H Tool Inc.
Adjusted Trial Balance
December 31, 2018
(in thousands)
	Debit Balances	Credit balances
Cash	67
Account Receivable	20
Supplies	11
land	7
Equipment	53
Accumulated depreciation		14
Software	32
Accumulated amortization		14
Accounts payable		9
Notes Payable		13
salaries and Wages payable		13
Interest Payable		2
Income tax payable		9
Common Stock		96
Retained earnings		7
Service Revenue		146
Salaries and Wages Expense	91
Supplies Expense	17
Depreciation Expense	7
Amortization Expense	7
Interest Expense	2
Income tax expense	9
Total	323	323

6. Income Statement, Statement of Retained Earning and Balance Sheet is as prepared below:

H&H Tool Inc.
Income Statement
For the Year Ended December 31, 2018
Particulars	Amount ($)	Amount ($)
Service Revenue		146
Less: Expense
Salaries and Wages Expense	91
Supplies Expense	17
Depreciation Expense	7
Amortization Expense	7
Interest Expense	2
Income tax expense	9
		133
Net income		13

H&H Tool Inc.
Retained earning
For the Year Ended December 31, 2018
Particulars	Amount ($)	Amount ($)
R/E beginning		7
Add:
Net income	13
Less:
Dividend
R/E Ending		20

H&H Tool Inc.
Balance Sheet
As at Dec 31, 2018
Particulars	Amount ($)	Amount ($)
ASSETS
Current Assets:
Cash	67
Account receivable	20
Supplies	11
Total Current Assets		98
Land		7
Equipment	53
Accumulated depreciation	-14
Software	32
Accumulated amortization	-14
		57
Total Assets		162
LIABILITIES AND STOCKHOLDERS EQUITY
Liabilities :
Current Liabilities
Accounts payable	9
Notes Payable	13
salaries and Wages payable	13
Interest Payable	2
Income tax payable	9
Total Current Liabilities		46
Total liabilities		46
Total Stockholders' Equity
Common stock	96
Retained earnings	20
Total Stockholders' Equity		116
Total Liabilities and stockholders’ equity		162

7. Closing journal entry is as prepared below:

Date	Particulars	L.F	Debit	Credit
2018			$	$
Dec-31	Service Revenue		146
	Income summary			146
	(For income closing balances recorded)
Dec-31	Income summary		133
	Salaries and Wages Expense			91
	Supplies Expense			17
	Depreciation Expense			7
	Amortization Expense			7
	Interest Expense			2
	Income tax expense			9
	(For expenses closing balances recorded)
Dec-31	Income summary		13
	Retained earnings			13
	(For income summary close to retained earnings)

8. Post Closing Trial Balance is as prepared below:

H&H Tool Inc
Post Closing Trial Balance
December 31, 2018
(in thousands)
	Debit Balances	Credit balances
Cash	67
Account Receivable	20
Supplies	11
land	7
Equipment	53
Accumulated depreciation		14
Software	32
Accumulated amortization		14
Accounts payable		9
Notes Payable		13
salaries and Wages payable		13
Interest Payable		2
Income tax payable		9
Common Stock		96
Retained earnings		20
Total	190	190