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.

1. Record journal entries for transactions (a) through (j). (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.)

2.  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.)

3. Prepare an unadjusted trial balance. (Enter your answers in thousands of dollars.)

4. 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.)

5. Post the adjusting entries from requirement 4 and 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

Solution 1:

Journal entries for transactions (a) through (j) are as follows:

	Date	Particulars	L.F	Debit	Credit
	2018			$	$
a	Mar-01	Cash		13
		Notes payable			13
		(for cash borrowed)
b	Mar-02	Land		7
		cash			7
		(For land purchased)
c	Apr-03	Cash		31
		Common Stock			31
		(for shares issued)
d	Jul-04	Software		12
		cash			12
		(for software purchased)
e	Oct-05	Supplies		17
		accounts payable			17
		(for supplies purchased, on account)
f	Nov-06	Accounts payable		14
		cash			14
		(for paid accounts payable)
g	Nov-07	No entry
h	Dec-08	Cash		113
		Account Receivable		33
		Service Revenue			146
		(For service revenue recorded)
i	Dec-09	Salaries and Wages Expense		78
		Cash			78
		(for paid for salaries)
j	Dec-10	Cash		17
		Account Receivable			17
		(For cash collected)

2. T-accounts for the accounts on the trial balance entering beginning balances and the transactions (a)-(j), adjusting entries (k)-(p), and closing entry is as shown below:

Cash					Accumulated depreciation- Equipment
Particulars	Amount ($)	Particulars	Amount ($)		Particulars	Amount ($)	Particulars	Amount ($)
Beg. Balance	4	Mar-02	7				Beg. Balance	7
Mar-01	13	Jul-04	12				Dec-31	7
Apr-03	31	Nov-06	14
Dec-08	113	Dec-09	78
Dec-10	17
	178		111			0		14
Ending Balance	67						Ending Balance	14
Account Receivbale					Accumulated Amortization
Particulars	Amount ($)	Particulars	Amount ($)		Particulars	Amount ($)	Particulars	Amount ($)
Beg. Balance	4	Dec-10	17				Beg. Balance	7
Dec-08	33						Dec-31	7
	37		17			0		14
Ending Balance	20						Ending Balance	14
Supplies					Accounts Payable
Particulars	Amount ($)	Particulars	Amount ($)		Particulars	Amount ($)	Particulars	Amount ($)
Beg. Balance	11	Dec-31	17		Nov-06	14	Beg. Balance	6
Oct-05	17						Oct-05	17
	28		17			14		23
Ending Balance	11						Ending Balance	9
Land					Notes Payable
Particulars	Amount ($)	Particulars	Amount ($)		Particulars	Amount ($)	Particulars	Amount ($)
Beg. Balance	0						Beg. Balance	0
Mar-02	7						Mar-01	13
	7		0			0		13
Ending Balance	7						Ending Balance	13
Equipment					Salaries and Wages payable
Particulars	Amount ($)	Particulars	Amount ($)		Particulars	Amount ($)	Particulars	Amount ($)
Beg. Balance	53						Beg. Balance	0
							Dec-31	13
	53		0			0		13
Ending Balance	53						Ending Balance	13
Software					Interest Payable
Particulars	Amount ($)	Particulars	Amount ($)		Particulars	Amount ($)	Particulars	Amount ($)
Beg. Balance	20						Beg. Balance	0
Jul-04	12						Dec-31	2
	32		0			0		2
Ending Balance	32						Ending Balance	2
Depreciation Expense					Income tax payable
Particulars	Amount ($)	Particulars	Amount ($)		Particulars	Amount ($)	Particulars	Amount ($)
Beg. Balance	0	Dec-31	7				Beg. Balance	0
Dec-31	7						Dec-31	9
	7		7			0		9
Ending Balance	0						Ending Balance	9
Amortization Expense					Common Stock
Particulars	Amount ($)	Particulars	Amount ($)		Particulars	Amount ($)	Particulars	Amount ($)
Beg. Balance	0	Dec-31	7				Beg. Balance	65
Dec-31	7						Apr-03	31
	7		7			0		96
Ending Balance	0						Ending Balance	96
Interest Expense					Retained Earnings
Particulars	Amount ($)	Particulars	Amount ($)		Particulars	Amount ($)	Particulars	Amount ($)
Beg. Balance	0	Dec-31	2				Beg. Balance	7
Dec-31	2						Dec-31	13
	2		2			0		20
Ending Balance	0						Ending Balance	20
Income tax expense					Service Revenue
Particulars	Amount ($)	Particulars	Amount ($)		Particulars	Amount ($)	Particulars	Amount ($)
Beg. Balance	0	Dec-31	9		Dec-31	146	Beg. Balance	0
Dec-31	9						Dec-08	146
	9		9			146		146
Ending Balance	0						Ending Balance	0
Supplies Expense					Income Summary
Particulars	Amount ($)	Particulars	Amount ($)		Particulars	Amount ($)	Particulars	Amount ($)
Beg. Balance	0	Dec-31	17		Dec-31	7	Beg. Balance	0
Dec-31	17				Dec-31	7	Dec-31	146
					Dec-31	2
					Dec-31	9
					Dec-31	17
	17		17		Dec-31	91
Ending Balance	0				Dec-31	13
						146		146
Salaries and Wages Expense							Ending Balance	0
Particulars	Amount ($)	Particulars	Amount ($)
Beg. Balance	0	Dec-31	91
Dec-09	78
Dec-31	13
	91		91
Ending Balance	0

3.  unadjusted trial balance is as prepared below:

H&H Tool Inc.
Unadjusted Trial Balance
December 31, 2018
(in thousands)
	Debit Balances	Credit balances
Cash	67
Account Receivable	20
Supplies	28
land	7
Equipment	53
Accumulated depreciation		7
Software	32
Accumulated depreciation		7
Accounts payable		9
Notes Payable		13
salaries and Wages payable		0
Interest Payable		0
Income tax payable		0
Common Stock		96
Retained earnings		7
Service Revenue		146
Salaries and Wages Expense	78
Supplies Expense	0
Depreciation Expense	0
Amortization Expense	0
Interest Expense	0
Income tax expense	0
Total	285	285

4. Adjusting journal entries (k) through (p).

	Date	Particulars	L.F	Debit	Credit
	2018			$	$
k	Dec-31	Amortization expense		7
		Accumulated amortization			7
		(For amortization recorded)
l	Dec-31	Supplies Expense		17
		Supplies			17
		(for supplies expensed)
m	Dec-31	Depreciation exp		7
		Acccumulated dep			7
		(for depreciation expensed)
n	Dec-31	Interest Expense		2
		Interest payable			2
		(for interest expensed)
o	Dec-31	Salaries and Wages expense		13
		Salaries and Wages payable			13
		(For salaries and wages recorded)
p	Dec-31	Income tax expense		9
		Income tax payable			9
		(for income tax expensed)