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):

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): Debit Credit con Account Titles 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 Earnings Service Revenue Salaries and Wages Expense Depreciation Expense Amortization Expense Income Tax Expense Interest Expense Supplies Expense Totals 00 Rooooooo $95 $95

Transactions and events during 2018 (summarized in thousands of dollars) follow:

1. Borrowed $12 cash on March 1 using a short-term note.
2. Purchased land on March 2 for future building site; paid cash, $9.
3. Issued additional shares of common stock on April 3 for $23.
4. Purchased software on July 4, $10 cash.
5. Purchased supplies on account on October 5 for future use, $18.
6. Paid accounts payable on November 6, $13.
7. Signed a $25 service contract on November 7 to start February 1, 2019.
8. Recorded revenues of $160 on December 8, including $40 on credit and $120 collected in cash.
9. Recognized salaries and wages expense on December 9, $85 paid in cash.
10. Collected accounts receivable on December 10, $24.

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, $10.
13. Depreciation for the year on the equipment, $6.
14. Interest of $1 to accrue on notes payable.
15. Salaries and wages earned but not yet paid or recorded, $12.
16. Income tax for the year was $8. It will be paid in 2019.

(Enter all of your answers in thousands of dollars. (i.e., $100,000 should be entered as $100)).

They are all within one question

Answer 1

a. Income statement
Service revenue	$160
Less: Expenses
Salaries and Wages Expense ($85 + $12)	$97
Depreciation Expense	$6
Amortization Expense	$5
Interest Expense	$1
Supplies Expense ($12 + $18 - $10)*	$20
Income Tax Expenses	$8
Total Expenses	$137
Net Profit	$23

*Calculation of supplies expense

Supplies expense = $12 (as provided in Trial Balance of January 1) + $18 (purchased for future use) - $10 (supplies counted on December 31) = $20

b. Balance sheet
Assets		Equity and liabilities
Current assets		Current liabilities
Cash	$45	Accounts Payable	$10
Accounts Receivable	$21	Notes Payable (short-term)	$12
Supplies	$10	Salaries and Wages Payable	$12
Total	$76	Interest Payable	$1
Non-current assets		Income Tax Payable	$8
Land	$9	Total	$43
Equipment, Net	$48	Stockholders' Equity
Software, Net	$15	Common Stock ($71 + $3)	$74
Total	$72	Retained Earnings	$31
		Total	$105
Total	$148	Total	$148

Note: The additional issue of shares might be wrongly typed as $23 instead of $3. The balance sheet tallies when the amount is taken as $3 instead of $23.

c. Net Income = $23

Net Profit Margin = Net Income / Net Sales * 100

= $23 / $160 * 100 = 14.38%

The company is financed primarily by Stockholders' Equity (there are no long term liabilities which are required for financing)

Current Ratio = Current Assets / Current Liabilities

= $76 / $43 = 1.77

d. Statement of retained earnings
Opening balance	$8
Add: Net profit	$23
Closing balance	$31