Harriet's Hats, Inc. Harriet's Hats is a fictional company. The following information includes the balance sheet as of December 31, 2016, and the details of the transactions that occurred during 2017. Background: Harriet's Hats is a hat retailer (in other words, Harriet's buys hats from a hat manufacturer and then sells them in their stores). Transactions for 2017 are representative of such a company's business activities. HINT: Read through the entire assignment at least twice before beginning to do any work. This will help you familiarize yourself with all of the important facts. Transactions for 2017: 1. Sales and Accounts Receivable a. Harriet's hats during 2017 had a sales price of $80 per hat. All sales were made on account. b. Cash collections on account amounted to $980,000. On July 1, 2017, Harriet's identified $40,250 of receivables as being uncollectible and wrote them off. d. Harriet's follows a percentage-of-receivables approach to estimate their accounts receivable that will become uncollectible. As of the end of 2017, Harriet's estimates that 10% of their receivables will be uncollectible. 2. Inventory a. Harriet's began 2017 with 1,900 hats which had a cost of $40 each. Employees physically counted 2,690 hats remaining in the warehouse at the end of 2017. Harriet's uses a periodic LIFO inventory system to cost their inventory. The following purchases (all on account) were made during 2017: i. January 15th - 4,250 hats @ $43.00 each ii. March 22nd - 2,900 hats @ $45.00 each iii. August 5th - 3,420 hats @ $47.00 each iv. October 26th - 6,020 hats @ $50.00 each b. During 2017, Harriet's made cash payments to inventory suppliers on the following dates: i. January 29th - $146,200 ii. April 16th - $156,600 iii. October 2nd - $160,740 iv. November 30th - $270,900 Property, Plant and Equipment a. Harriet's uses straight-line depreciation for all of its store fixtures and office equipment. b. Below is a schedule of the store fixtures and office equipment Harriet's had in place at the end of 2017. FIXTURES AND EQUIPMENT (as of December 31, 2017) ID # Historical | Estimated Estimated Date acquired Cost Useful Life Salvage Value 1256 $60,000 12 years $0 Jan. 1, 2007 1876 $100.000 10 year 10 years $15,000 4299 $92,000 15 years $5,000 Jan. 1, 2009 c. On April 1, 2017 new store fixtures were purchased for $42,000 in cash. Harriet's expects the fixtures to have a 10 year useful life and a $4,000 salvage value. d. On October 1, 2017 office equipment (ID#1876) was sold for $16,825. 4. Debt a. On August 1, 2017, Harriet's paid off the note payable that was outstanding at the beginning of the period. The note had an 10% interest rate, had been issued on August 1, 2016, and required semiannual interest payments on Jan 31, 2017 and July 31, 2017. b. On October 1, 2017, Harriet's borrowed $120,000 on a new note payable. The new note carries a 6% interest rate with semiannual interest payments required on March 31, 2018 and September 30, 2018. 5. Operations a. Harriet's made a rent payment of $51,000 on August 1, 2017. The payment was for rent on the store building and was prepaid for one year. The balance in the prepaid account at the end of 2016 represents the rent for January through July 31, 2017 that was paid for on August 1, 2016. b. Cash paid out during 2017 for wages totaled $142,000. Records indicate that salaries for the last week of December 2017 amounted to $25,000 and will be paid at the end of the first week in January 2018 (a two-week pay period). c. Other expenses (paid in cash) totaled $38,000. Income Taxes a. On March 15, 2017, Harriet's paid their 2016 income taxes. Harriet's will pay their 2017 income taxes on March 15, 2018. Harriet's has a 40% income tax rate for both 2016 and 2017. Common Stock a. On December 1, 2017, dividends of $35,000 were declared and paid. b. On January 1, 2017, Harriet's issued 10,000 additional shares of common stock for $10 per share. Required: 1. Using the journal and T-accounts provided, record the transactions that occurred during 2017. If no specific date is provided for a transaction, leave the date column blank. IMPORTANT: Since there are several transactions for which no date is given, the journal entries do NOT need to be in chronological order. All adjusting and closing entries should have December 31, 2017 as the date. Prepare the balance sheet, statement of retained earnings and income statement for Harriet's Hats, Inc. for the year ended December 31, 2017 3. Record the closing entries for the company (this step is often skipped, don't lose these points). 7. Check Figures: . 2017 Gross Profit Percentage: 41.375% 2017 Current Ratio: 1.9799 2017 Profit Margin: 9.376% Harriet's Hats, Inc. Harriet's Hats is a fictional company. The following information includes the balance sheet as of December 31, 2016, and the details of the transactions that occurred during 2017. Background: Harriet's Hats is a hat retailer (in other words, Harriet's buys hats from a hat manufacturer and then sells them in their stores). Transactions for 2017 are representative of such a company's business activities. HINT: Read through the entire assignment at least twice before beginning to do any work. This will help you familiarize yourself with all of the important facts. Transactions for 2017: 1. Sales and Accounts Receivable a. Harriet's hats during 2017 had a sales price of $80 per hat. All sales were made on account. b. Cash collections on account amounted to $980,000. On July 1, 2017, Harriet's identified $40,250 of receivables as being uncollectible and wrote them off. d. Harriet's follows a percentage-of-receivables approach to estimate their accounts receivable that will become uncollectible. As of the end of 2017, Harriet's estimates that 10% of their receivables will be uncollectible. 2. Inventory a. Harriet's began 2017 with 1,900 hats which had a cost of $40 each. Employees physically counted 2,690 hats remaining in the warehouse at the end of 2017. Harriet's uses a periodic LIFO inventory system to cost their inventory. The following purchases (all on account) were made during 2017: i. January 15th - 4,250 hats @ $43.00 each ii. March 22nd - 2,900 hats @ $45.00 each iii. August 5th - 3,420 hats @ $47.00 each iv. October 26th - 6,020 hats @ $50.00 each b. During 2017, Harriet's made cash payments to inventory suppliers on the following dates: i. January 29th - $146,200 ii. April 16th - $156,600 iii. October 2nd - $160,740 iv. November 30th - $270,900 Property, Plant and Equipment a. Harriet's uses straight-line depreciation for all of its store fixtures and office equipment. b. Below is a schedule of the store fixtures and office equipment Harriet's had in place at the end of 2017. FIXTURES AND EQUIPMENT (as of December 31, 2017) ID # Historical | Estimated Estimated Date acquired Cost Useful Life Salvage Value 1256 $60,000 12 years $0 Jan. 1, 2007 1876 $100.000 10 year 10 years $15,000 4299 $92,000 15 years $5,000 Jan. 1, 2009 c. On April 1, 2017 new store fixtures were purchased for $42,000 in cash. Harriet's expects the fixtures to have a 10 year useful life and a $4,000 salvage value. d. On October 1, 2017 office equipment (ID#1876) was sold for $16,825. 4. Debt a. On August 1, 2017, Harriet's paid off the note payable that was outstanding at the beginning of the period. The note had an 10% interest rate, had been issued on August 1, 2016, and required semiannual interest payments on Jan 31, 2017 and July 31, 2017. b. On October 1, 2017, Harriet's borrowed $120,000 on a new note payable. The new note carries a 6% interest rate with semiannual interest payments required on March 31, 2018 and September 30, 2018. 5. Operations a. Harriet's made a rent payment of $51,000 on August 1, 2017. The payment was for rent on the store building and was prepaid for one year. The balance in the prepaid account at the end of 2016 represents the rent for January through July 31, 2017 that was paid for on August 1, 2016. b. Cash paid out during 2017 for wages totaled $142,000. Records indicate that salaries for the last week of December 2017 amounted to $25,000 and will be paid at the end of the first week in January 2018 (a two-week pay period). c. Other expenses (paid in cash) totaled $38,000. Income Taxes a. On March 15, 2017, Harriet's paid their 2016 income taxes. Harriet's will pay their 2017 income taxes on March 15, 2018. Harriet's has a 40% income tax rate for both 2016 and 2017. Common Stock a. On December 1, 2017, dividends of $35,000 were declared and paid. b. On January 1, 2017, Harriet's issued 10,000 additional shares of common stock for $10 per share. Required: 1. Using the journal and T-accounts provided, record the transactions that occurred during 2017. If no specific date is provided for a transaction, leave the date column blank. IMPORTANT: Since there are several transactions for which no date is given, the journal entries do NOT need to be in chronological order. All adjusting and closing entries should have December 31, 2017 as the date. Prepare the balance sheet, statement of retained earnings and income statement for Harriet's Hats, Inc. for the year ended December 31, 2017 3. Record the closing entries for the company (this step is often skipped, don't lose these points). 7. Check Figures: . 2017 Gross Profit Percentage: 41.375% 2017 Current Ratio: 1.9799 2017 Profit Margin: 9.376%