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	$	3
Accounts Receivable		5
Supplies		12
Land		0
Equipment		69
Accumulated Depreciation				$	6
Software		24
Accumulated Amortization					4
Accounts Payable					5
Notes Payable (short-term)					0
Salaries and Wages Payable					0
Interest Payable					0
Income Tax Payable					0
Common Stock					90
Retained Earnings					8
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	$	113		$	113

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 $178 on December 8, including $49 on credit and $129 collected in cash.
9. Recognized salaries and wages expense on December 9, $94 paid in cash.
10. Collected accounts receivable on December 10, $33.

Data for adjusting journal entries as of December 31:

11. Unrecorded amortization for the year on software, $4.
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.

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. 9-a. How much net income did H & H Tool, Inc., generate during 2018? What was its net profit margin?

10. 9-b. Is the company financed primarily by liabilities or stockholders’ equity?

11. 9-c. What is its current ratio?

Answer 1

Adjusted Trial Balance

Account Titles	Debit	Credit
Cash	$                   74
Accounts Receivable	$                   21
Supplies	$                   10
Land	$                     9
Equipment	$                   69
Accumulated Depreciation		$                    12
Software	$                   34
Accumulated Amortization		$                      8
Accounts Payable		$                    10
Notes Payable (short-term)		$                    12
Salaries and Wages Payable		$                    12
Interest Payable		$                      1
Income Tax Payable		$                      8
Common Stock		$                  113
Retained Earnings		$                      8
Service Revenue		$                  178
Salaries and Wages Expense	$                106
Depreciation Expense	$                     6
Amortization Expense	$                     4
Income Tax Expense	$                     8
Interest Expense	$                     1
Supplies Expense	$                   20
Totals	$                362	$                  362

Closing Entries

Account Titles	Debit	Credit
Service Revenue	$                178
Retained Earnings		$                  178
(To close revenue account)
Retained Earnings	$                145
Salaries and Wages Expense		$                  106
Depreciation Expense		$                      6
Amortization Expense		$                      4
Income Tax Expense		$                      8
Interest Expense		$                      1
Supplies Expense		$                    20
(To close expense accounts)

Post-Closing Trial

Account Titles	Debit	Credit
Cash	$                   74
Accounts Receivable	$                   21
Supplies	$                   10
Land	$                     9
Equipment	$                   69
Accumulated Depreciation		$                    12
Software	$                   34
Accumulated Amortization		$                      8
Accounts Payable		$                    10
Notes Payable (short-term)		$                    12
Salaries and Wages Payable		$                    12
Interest Payable		$                      1
Income Tax Payable		$                      8
Common Stock		$                  113
Retained Earnings		$                    41
Totals	$                217	$                  217

9-a
Net Income = $178-145 = $33
Net Profit Margin = $33/$178 = 18.54%

9-b
Company is primarliy financed by Stockholder's Equity

9-c
Current Ratio = Current Assets / Current Liabilities
= $105 / 43 = 2.44

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