Question

Required Information [The following information applies to the questions displayed below.] 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 6 13 70 $ 5 15 5 4 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 83 9 @ $186 $126 Transactions and events during 2018 (summarized in thousands of dollars) follow: a. Borrowed $11 cash on March 1 using a short-term note. b. Purchased land on March 2 for future building site: paid cash. $8. C. Issued additional shares of common stock on April 3 for $24. d. Purchased software on July 4, $11 cash. e. Purchased supplies on account on October 5 for future use. $19. f. Paid accounts payable on November 6, $12. g. Signed a $20 service contract on November 7 to start February 1, 2019. h. Recorded revenues of $180 on December 8, including $50 on credit and $130 collected in cash. i. Recognized salaries and wages expense on December 9. $95 paid in cash. j. Collected accounts receivable on December 10, $34. Data for adjusting journal entries as of December 31: k. Unrecorded amortization for the year on software. $5. 1. Supplies counted on December 31, 2018. $12. m. Depreciation for the year on the equipment. $5. n. Interest of $1 to accrue on notes payable. o. Salaries and wages earned but not yet paid or recorded. $13. p. Income tax for the year was $7. It will be paid in 2019. 9-6. 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?

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Answer 1

Answers
9-a.	Calculation of net income
	Particulars	$	$
	Service revenue (A)		180
	Salaries & wages exp.	108
	Depreciation	5
	Amortisation	5
	income tax	7
	interest	1
	supplies	20
	Total exp. (B)		146
	Net Income C=A-B		34
	Calculation of Net profit margin
	Net Income/Service revenue*100		19%
	34/180*100
9-b.	Company is primarily financed by stockholders equity as there is no long term liability but majore portion is shareholders equity.
9.c	Calculation of Current Ratio
	Current Assets/Current Liabilities =	109/43 =	2.53
	Current Assets	$
	Cash	75
	AR	22
	Supplies	12
	Total	109
	Current Liabilities	$
	AP	11
	Notes payable(short term)	11
	Salaries & wages payable	13
	Interest payable	1
	IT payable	7
	Total	43