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):

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

a. Borrowed $12 cash on March 1 using a short-term note.

b. Purchased land on March 2 for future building site; paid cash, $9.

c. Issued additional shares of common stock on April 3 for $23.

d. Purchased software on July 4, $10 cash.

e. Purchased supplies on account on October 5 for future use, $18.

f. Paid accounts payable on November 6, $13.

g. Signed a $25 service contract on November 7 to start February 1, 2019.

h. Recorded revenues of $160 on December 8, including $40 on credit and $120 collected in cash.

i. Recognized salaries and wages expense on December 9, $85 paid in cash.

j. Collected accounts receivable on December 10, $24.

Data for adjusting journal entries as of December 31:

k. Unrecorded amortization for the year on software, $5.

l. Supplies counted on December 31, 2018, $10.

m. Depreciation for the year on the equipment, $6.

n. Interest of $1 to accrue on notes payable.

o. Salaries and wages earned but not yet paid or recorded, $12.

p. Income tax for the year was $8. It will be paid in 2019.

Required:

1. Set up T-accounts for the accounts on the trial balance and enter beginning balances. If you are completing this problem in Connect using the general ledger tool, this requirement will be completed for you.

2. Record journal entries for transactions (a) through (j).

3. Post the journal entries from requirement 2 to T-accounts and prepare an unadjusted trial balance. If you are completing this problem in Connect using the general ledger tool, this requirement will be completed for you using your answers to requirement 2.

4. Record the adjusting journal entries (k) through (p).

5. Post the adjusting entries from requirement 4 and prepare an adjusted trial balance. If you are completing this problem in Connect using the general ledger tool, this requirement will be completed for you using your previous answers.

6. Prepare an income statement, statement of retained earnings, and balance sheet. 

7. Prepare the closing journal entry.

8. Post the closing entry from requirement 7 and prepare a post-closing trial balance. If you are completing this problem in Connect using the general ledger tool, this requirement will be completed for you using your previous answers.

9. How much net income did H & H Tool, Inc., generate during 2018? What was its net profit margin? Is the company financed primarily by liabilities or stockholders’ equity? What is its current ratio (rounded to two decimal places)?

Transcribed Image Text:

Debit Account Titles Credit $ 3 Cash Accounts Receivable Supplies 12 Land Equipment 60 $ 6 Accumulated Depreciation Software 15 Accumulated Amortization Accounts Payable Notes Payable (short-term) Salaries and Wages Payable Interest Payable Income Tax Payable Common Stock 71 Retained Earnings Service Revenue Salaries and Wages Expense Depreciation Expense Amortiz ation Expense Income Tax Expense Interest Expense Supplies Expense Totals $95 $95