BACKGROUND Harriets Hats is a hat retailer who buys hats from a hat manufacturer and then sells them in its stores. The following information includes the companys December 31, 20Y6 balance sheet and the details of transactions occurring during 20Y7.

REQUIRED Using the template provided on Blackboard, complete the following:

1. Record the transactions in the General Journal. Be sure to label each transaction according to its number below.

2. Post the transactions from the General Journal to the General Ledgers (t-accounts).

3. Prepare any necessary closing entries. Be sure to record them in the General Journal and post them to the General Ledgers. 4. Prepare the balance sheet, retained earnings statement, and income statement for Harriets Hats, Inc. for the year ended December 31, 20Y7.

HINT: Read through the entire assignment at least twice to become familiar with all of the important facts before beginning to do any work.

TRANSACTIONS FOR THE YEAR ENDED DECEMBER 31, 20Y7

1. Sales and Accounts Receivable

a. The sales price of each hat was $30. All sales were made on account.

b. Cash collections on account amounted to $42,000.

c. The company identified $350 of receivables as being uncollectible and wrote them off.

d. The company follows a percentage-of-receivables approach to estimate its accounts receivable that will become uncollectible. As of the end of 20Y7, the company estimates that 12% of its receivables will be uncollectible.

2. Inventory a. The company began 20Y7 with 500 hats which had a cost of $8 each. The following purchases (all on account) were made during 20Y7:

(1) January 15th 405 hats @ $10.00 each

(2) March 23rd 310 hats @ 12.00 each

(3) July 2nd 525 hats @ $14.00 each

(4) October 31st 430 hats @ $15.00 each

b. Employees physically counted 530 hats remaining in the warehouse at the end of 20Y7. The company uses a periodic LIFO inventory system to cost its inventory.

c. The company made cash payments to inventory suppliers totaling $21,500.

3. Property, Plant and Equipment

a. Straight-line depreciation is used for all store fixtures and office equipment.

b. Below is a schedule of the store fixtures and office equipment the company had in place at the end of 20Y6. FIXTURES AND EQUIPMENT (as of December 31, 20Y6)

ID Number	Historical Cost	Useful life	Salvage Value	Date Acquired
1256	12000	10 years	1200	Jan. 1, 20Y1
1876	1700	5 years	300	Jan 1, 20Y3
4299	22000	5 years	1000	Jan 1, 20Y6

c. On January 1, new store fixtures were purchased for $3,000 in cash. The company expects the fixtures to have a 5 year useful life and a $500 salvage value. d. On July 1, office equipment (ID#1876) was sold for $620.

4. Debt

a. On September 1, 20Y7, the company paid-off the note payable that was outstanding at the beginning of the period. The note had an 8% interest rate, had been issued on September 1, 20Y6, and required semiannual interest payments on February 28 and August 31.

b. Also on September 1, 20Y7, the company borrowed $4,000 on a new note payable. The new note carries a 5% interest rate with similar payment terms as the note that was just paid-off.

5. Operations

a. Two rent payments of $1,800 were made during 20Y7 (on March 1 and September 1). The payments were for rent on the store building and were prepaid for six months each. The balance in the prepaid account at the end of 20Y7 represents the rent for January and February 20Y8.

b. Cash paid out for wages during 20Y7 totaled $12,200. Records indicate that salaries for the last week of December amounted to $300 and would be paid at the end of the first week in January (a two-week pay period). c. Other expenses (paid in cash) totaled $2,150.

6. Income Taxes

a. The company paid its 20Y6 income taxes in March of 20Y7.

b. The company has a 30% income tax rate for both 20Y6 and 20Y7.

7. Common Stock

a. Dividends of $3,600 were declared and paid during 20Y7.

b. New common stock was issued for $10,000 during 20Y7.

BALANCE SHEET as of DECEMBER 31, 20Y6

Assets Cash $15,000

Accounts Receivable 5,000

Less: Allowance for Bad Debts (500)

Net Accounts Receivable 4,500

Prepaid Rent 500

Inventory 4,000

Total Current Assets 24,000

Property, Plant, and Equipment 35,700

Less: Accumulated Depreciation (11,800)

Net Property, Plant, and Equipment 23,900

Total Assets $47,900

Liabilities and Owners Equity Accounts Payable $2,500

Wages Payable 170

Interest Payable 64

Income Taxes Payable 900

Notes Payable 2,400

Total Current Liabilities 6,034

Common Stock 20,000

Retained Earnings 21,866

Total Liabilities and Owners Equity $47,900