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 $ 2 Accounts Receivable 6 Supplies 13 Land 0 Equipment 70 Accumulated Depreciation $ 5 Software 15 Accumulated Amortization 5 Accounts Payable 4 Notes Payable (short-term) 0 Salaries and Wages Payable 0 Interest Payable 0 Income Tax Payable 0 Common Stock 83 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 $ 106 $ 106 Transactions and events during 2018 (summarized in thousands of dollars) follow: Borrowed $11 cash on March 1 using a short-term note. Purchased land on March 2 for future building site; paid cash, $8. Issued additional shares of common stock on April 3 for $24. Purchased software on July 4, $11 cash. Purchased supplies on account on October 5 for future use, $19. Paid accounts payable on November 6, $12. Signed a $20 service contract on November 7 to start February 1, 2019. Recorded revenues of $180 on December 8, including $50 on credit and $130 collected in cash. Recognized salaries and wages expense on December 9, $95 paid in cash. Collected accounts receivable on December 10, $34. Data for adjusting journal entries as of December 31: Unrecorded amortization for the year on software, $5. Supplies counted on December 31, 2018, $12. Depreciation for the year on the equipment, $5. Interest of $1 to accrue on notes payable. Salaries and wages earned but not yet paid or recorded, $13. Income tax for the year was $7. It will be paid in 2019. 6-a. Prepare an income statement. 6-b. Prepare the statement of retained earnings. 6-c. Prepare the balance sheet.

Answer 1

(S in 000s) Credit Step 1 Journal entry for Transaction for 2018 Particulars 1-Mar-18 Cash Debit Date $11 Notes Payable (To Record borrowing of cash) $11 2-Mar-18 Land S8 Cash (To Record purchase of land) S8 $24 3-Apr-18 Cash $24 Common Stock (To Record issue of common sck) $11 4-Jul-18 Software Cash (To Record purchase of software) $11 5-Oct-18 Supplies $19 Accounts Payable (To Record purchase of supplies) $19 6-Nov-18 Accounts Payable $12 Cash (To Record payment made) $12 7-Nov-18 No Entry No Entry (On signing of service contract) 8-Dec-18 Accounts Receivable Cash Service Revenue (To Record sales) 9-Dec-18 Salaries and Wages Expense S50 $130 $180 $95 Cash (To Record salary expense) S95 ST

$34 10-Dec-18 Cash $34 Accounts Receivable (To Record payment received) Step 2 Adjusting Entries (S in 000s) Particulars Debit Credit Date 31-Dec-18 Amortisation Expense Accumulated Amortisation (To Record Amortisation on sofware) S5 31-Dec-18 Supplies Expesne $20 Supplies (To Record supplies Expense) S20 31-Dec-18 Depreciation Expense Accumulated Depreciation S5 S5 To Record Depreciation on Equipment) 31-Dec-18 Interest Expense $1 $1 Interest Payable (To Record interest accrue on notes payable) 31-Dec-18 Salaries and Wages Expense Salaries and Wages Payable $13 $13 To Record interest accrue on notes payable) 31-Dec-18 Income Tax Expense Income Tax Payable (To Record income tax provision) $7 Working Supplies Expense Supplies Opening as on 01/01/2018 $13 1 $19 Add: Purchases Less: Closing as on 31/12/2018 ($12) $20 Supplies Expense $7 $5

H and H Tool Inc (S in 000s) Step 3 Trial Balance Adjusted Trail Balance Entry Adjustment January 1, 2018 Debit December 31, 2018 Debit Debit Particulars Credit Credit Credit Cash $2 $199 $126 $75 Accounts Receivable Supplies $6 $13 $50 $19 S34 S20 S22 $12 S0 $8 $0 $0 $0 S8 Land Equipment Accumulated Depreciation Software Accumulated Amortisation Accounts Payable $70 $0 $5 $70 S5 S10 $15 $11 $0 $26 $5 $19 S5 $4 S0 $12 S10 $11 Notes Payable S0 S0 $0 S0 $11 $11 Salaries and Wages Payable Interest Payable $0 50 S13 $1 S13 $1 S0 S0 $7 $7 Income Tax Payable $83 $0 $0 $24 S0 $107 $9 Common Stock Retained Earnings 9 Service Revenue Salaries and Wages Expense Depreciation Expense Amortisation Expense S0 S0 $180 S180 $108 S0 $0 $108 S0 S0 S5 $5 $0 S0 S5 S5 S0 $1 $0 $1 Interest Expense Income Tax Expense Supplies Expesne S0 $0 $7 $20 $0 S0 $7 $20 $445 $106 $106 $445 $359 $359 ह

Ans 6A H and H Tool Inc Income Statement For the year ended 31st December 2018 (S in 000s) Particulars Service Revenue Less: Operating Expense Amount Amount $180 $108 Salaries and Wages Expense $5 Depreciation Expense $5 Amortisation Expense $1 Interest Expense $20 Supplies Expesne (S139) Total Operating Expense Operating Income Less: Income Tax Expense Net Income $41 ($7) $34 Ans 6B H and H Tool Inc Statement of Retained Earnings For the year ended 31st December 2018 (S in 000s) Particulars Balance January 1, 2018 Net Income for the year ended 31st December 2018 Amount $9 $34 Balance December 31, 2018 $43

Ans 6C H and H Tool Inc Balance Sheet December 31, 2018 (S in 000s) Liabilities $75 Accounts Payable $22 Notes Payable $12 Salaries and Wages Payable Assets Cash Amount Amount Amount $11 Accounts Receivable Supplies $11 $13 Interest Payable S1 Income Tax Payable $7 $109 Total Current Liabilities Total Current Assets S43 $8 Shareholders' Equity Land Equipment Less: Accumulated Depreciation S70 Common Stock $107 (S10) Retained Earnings $43 $60 Total Shareholders' Equity $150 Software Less: Accumulated Amortisation $26 ($10) $16 Total Assets $193 Total Liabilities and Shareholder's Equity $193