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		50
Accumulated Depreciation				$	7
Software		23
Accumulated Amortization					5
Accounts Payable					6
Notes Payable (short-term)					0
Salaries and Wages Payable					0
Interest Payable					0
Income Tax Payable					0
Common Stock					67
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:

1. Borrowed $13 cash on March 1 using a short-term note.
2. Purchased land on March 2 for future building site; paid cash, $7.
3. Issued additional shares of common stock on April 3 for $34.
4. Purchased software on July 4, $12 cash.
5. Purchased supplies on account on October 5 for future use, $17.
6. Paid accounts payable on November 6, $14.
7. Signed a $30 service contract on November 7 to start February 1, 2019.
8. Recorded revenues of $140 on December 8, including $30 on credit and $110 collected in cash.
9. Recognized salaries and wages expense on December 9, $75 paid in cash.
10. Collected accounts receivable on December 10, $14.

Data for adjusting journal entries as of December 31:

11. Unrecorded amortization for the year on software, $5.
12. Supplies counted on December 31, 2018, $11.
13. Depreciation for the year on the equipment, $7.
14. Interest of $2 to accrue on notes payable.
15. Salaries and wages earned but not yet paid or recorded, $13.
16. Income tax for the year was $9. It will be paid in 2019.

1. 6-a. Prepare an income statement.

2. 6-b. Prepare the statement of retained earnings.

3. 6-c. Prepare the balance sheet.

Answer 1

H & H Tool, Inc. (Amount in '000) Journal Enteries Date 1.3.2018 Cash a/c Debit in $ Credit in $ Particulars 13 To Note Payable 13 (Being Note Payable issued) 2.3.2018 Land a/c Dr, To Cash (Being Land purchased in cash) 8.12.2018 Cash a/c 110 Accounts Receivable a/c Dr 30 To service revenue 140 (Being Revenue earned in cash and credit) 3.4.2018 Cash a/c 34. To Common Stock 34. (Being Common Stock issued for cash) 9.12.2018 Salaries and wages expense a/c Dr 75 To Cash 75 (Being salaries and wages paid in cash) 10.12.2018 Cash a/c 14 To Accounts Receivable 14 (Being Cash received from debtors) 4.7.2018 Software a/c To Cash Dr 12 12 (Being Software purchased for cash 6.11.2018 Accounts Payable a/c Dr 14 To Cash 14 (Being Accounts Payable paid in cash) 5.10.2018 Supplies a/c 17 To Accounts Payable 17 (Being Supplies purchased on account)

Adjusting Enteries Date 31.12.2018 Amortization on software a/c Debit in $ Credit in $ Particulars Dr To accumulated amortization (Being amortization of software charged to Software 31.12.2018 Supplies Expense a/c 17 To Supplies Being Supplies expense charged to Supplies 17 31.12.2018 Depreciation a/c To accumulated depreciation (Being Depreciation on equipment charged to Equip 31.12.2018 Interest Expense a/c 2 To Interest Payable 2 (Being Interest accrued on Note Payable) 31.12.2018 Salaries and wages expense a/c Dr To Salaries and wages payable 13 13 (Being Salary Expense accrued) 31.12.2018 Income tax expense a/c Dr 9 To Income Tax Payable 9 (Being Income tax accrued) Closing Enteries Date 31.12.2018 Income Summary a/c Debit in $ Credit in $ Particulars 137 To Salaries and wages expense To Depreciation Expense To Amortization Expense To Income tax expense To Interest Expense To Supplies Expense 18 2 17 (Being expense accounts closed 31.12.2018 Service Revenue a/c 140 To Income Summa 140 Being Revenue accounts closed 31.12.2018 Income Summary a/c To Retained Earnings (Being Income summary closed)

Adjusted Trial Balance For the period ending 31.12.2018 Post Closing Unadjusted Adjustment Adjusted Debit in $ Credit in $ Debit in Credit in $ Debit in Credit in Debit in Credit in $ Particulars Cash Accounts Receivable Supplies land Equipment Accumulated depreciation Software Accumulated Amortization Accounts Payable Notes Payable (short term) Salaries and wages payable Interest Payable Income Tax Payable Common Stock Retained Earning Service revenue Salaries and wages expense Depreciation Expense Amortization Expense Income tax expense Interest Expense Supplies Expense Totals 17 14 14 35 35 35 13 13 13 2 13 13 2 13 2 101 10 101 101 140 140 75 2 17 53 2 17 327 291 190 190 291 53 327 Net Income Net profit margins Net Income / Sales-3/ 140 : 2.14% Debt to Equity-Total Liabilities / Total Equity-55/111-49.55% Since debt equity ratio is 49.55% the company is primarily financed by Equity Current Ratio Current Assets/Current Liabilities 98/55 1.78

Statement of Income For the period ending 31.12.2018 Service revenue Less: Salaries and wages expense Depreciation Expense Amortization Expense Income tax expense Interest Expense Supplies Expense 140 7 18 17 MB Statement of Retained Earnings For the period ending 31.12.2018 1.1.2018 7 10

Balance sheet As at 31.12.2018 Assets Current Assets Cash Accounts Receivable Supplies Amounts in$ Amounts in $ Liabilities Amounts in $ Amounts in $ Current Liabilities Accounts Payable Notes Payable (short term) 67 13 13 20 98 Salaries and wages payable Interest Payable Income Tax Payable Non Current Assets land Equipment Accumulated deprecia Software Accumulated Amortiz Total Assets 18 7 Shareholders equity 50 14 35 10 36 Common Stock 101 10 Retained Earning 25 166 Total Liabilities & equity 166