Question

Brothers Herm and Steve Hargenrater began operations of their tool and die shop (H & H Tool) on January 1, 1987, in Meadville, PA. The annual reporting period ends December 31. Assume that the trial balance on January 1, 2023, was as follows:

H & H Tool
Trial Balance on January 1, 2023
(dollars in millions, except par value)
Account Titles	Debit	Credit
Cash	4
Accounts receivable	3
Supplies	12
Land
Equipment	79
Accumulated depreciation (on equipment)		9
Other noncurrent assets (not detailed to simplify)	8
Accounts payable
Wages payable
Interest payable
Dividends payable
Income taxes payable
Long-term notes payable
Common stock (8 million shares, $0.50 par value)		6
Additional paid-in capital		81
Retained earnings		10
Service revenue
Depreciation expense
Supplies expense
Wages expense
Interest expense
Income tax expense
Miscellaneous expenses (not detailed to simplify)
Totals	106	106

Transactions during 2023 follow. All dollars are in millions, except per share amounts:

1. Borrowed $20 cash on a 5-year, 12 percent note payable, dated March 1, 2023.
2. Sold 6 million additional shares of common stock for cash at $1 market value per share on January 1, 2023.
3. Purchased land for a future building site; paid cash, $12.
4. Earned $223 in revenues for 2023, including $50 on credit and the rest in cash.
5. Incurred $90 in wages expense and $26 in miscellaneous expenses for 2023, with $21 on credit and the rest paid in cash.
6. Collected accounts receivable, $35.
7. Purchased other noncurrent assets, $12 cash.
8. Purchased supplies on account for future use, $24.
9. Paid accounts payable, $22.
10. Declared cash dividends on December 1, $22.
11. Signed a three-year $30 service contract to start February 1, 2024.
12. Paid the dividends in (j) on December 31.

Data for adjusting entries:

1. Supplies counted on December 31, 2023, $15.
2. Depreciation for the year on the equipment, $11.
3. Interest accrued on notes payable (to be computed).
4. Wages earned by employees since the December 24 payroll but not yet paid, $14.
5. Income tax expense, $10, payable in 2024.

Requirements

1. General Journal tab - (Step 1) Prepare the journal entries to record the first 12 transactions (transactions (a) through (l)). Review the accounts as shown in the General Ledger and Trial Balance tabs.

(Step 2) Prepare the necessary adjusting entries (13) through (17) (transactions (m) through (q)) to correctly report net income for the period.

(Step 3) After preparing the financial statements, record the closing entry (18). Notice the effect on the trial balance, income statement, and balance sheet tabs once the closing entry is posted.

• 1. Record the borrowed $20 cash on a 5-year, 12 percent note payable, dated March 1, 2023.

• 2. Record the sold 6 million additional shares of common stock for cash at $1 market value per share on January 1, 2023.

• 3. Record the purchased land for a future building site; paid cash, $12.

• 4. Record the earned $223 in revenues for 2023, including $50 on credit and the rest in cash.

• 5. Record the wages expense of $90 and miscellaneous expenses of $26 incurred for 2023, with $21 on credit and the rest paid in cash.

• 6. Record the collected accounts receivable, $35.

• 7. Record the purchased other noncurrent assets, $12 cash.

• 8. Record the purchased supplies on account for future use, $24.

• 9. Record the paid accounts payable, $22.

• 10. Record the $22 cash dividends declared on December 1.

• 11. Record the $22 three-year service contract signed to start February 1, 2024.

• 12. Paid the declared dividends.

• 13. Supplies counted on December 31, 2023, $15. Prepare the adjusting entry needed at December 31.

• 14. Depreciation for the year on the equipment, $11. Prepare the adjusting entry needed at December 31.

• 15. Interest accrued on notes payable (to be computed). Prepare the adjusting entry needed at December 31.

• 16. Wages earned by employees since the December 24 payroll but not yet paid, $14. Prepare the adjusting entry needed at December 31.

• 17. Income tax expense, $10, payable in 2024. Prepare the adjusting entry needed at December 31.

• 18. Record the closing entry. Prepare the adjusting entry needed at December 31.

1. General Ledger tab - Each journal entry is posted automatically to the General Ledger. Use the drop-down button to view the unadjusted, adjusted, or post-closing balances in the General Ledger.

1. Trial Balance tab - You may view either the unadjusted, adjusted, or post-closing trial balance by choosing from the drop-down. Your choice will determine the reported values on the financial statement tabs.

1. Income Statement tab - Use the drop-downs to select the accounts that should be properly included on the Income Statement. Compute earnings per share. The unadjusted, adjusted, or post-closing balances will appear for each account, based on your selection.

1. Use the drop-downs to select the accounts that should be properly included on the statement of stockholders' equity and enter the appropriate amounts. Note: Amounts to be deducted should be indicated with a minus sign. Enter your answers in millions rather than in dollars (for example, 5 million should be entered as 5 rather than 5,000,000).

1. Use the drop-downs below to select the accounts that should be properly included on the balance sheet. The unadjusted, adjusted, or post-closing balances will appear for each account, based on your selection in the drop-downs. Note: Include all balance sheet accounts, even those with zero balances.

1. Identify the type of transaction for (a) through (l) for the statement of cash flows and the direction and amount of the effect. Note: List cash outflows as negative amounts. For transactions with no effect, choose "No effect". Enter your answers in millions rather than in dollars (for example, 5 million should be entered as 5 rather than 5,000,000).

1. Compute the applicable ratios shown below for 2023. Note: Round your answers for a. and b. to 2 decimal places. Enter your answer for c. as a whole percentage rounded to one decimal place (i.e. 0.288 should be entered as 28.8).

General Ledger Account H \& H Tool Trial Balance December 31, 2023 \begin{tabular}{|c|c|c|c|} \hline Account Title & & & Credit \\ \hline NCash & $ & 4 & \\ \hline Accounts receivable & & 3 & \\ \hline Supplies & & 12 & \\ \hline Other noncurrent assets & & 8 & \\ \hline Equipment & & 79 & \\ \hline Accumulated depreciation-equipment & & & 9 \\ \hline Common stock & & & 6 \\ \hline Additional paid-in capital & & & 81 \\ \hline NRetainedearnings & & & 10 \\ \hline Total & $ & 106 & 106 \\ \hline \end{tabular} \begin{tabular}{|l|l|} \hline \multicolumn{2}{|c|}{ H \& H Tool } \\ \hline \multicolumn{2}{|c|}{ Income Statement } \\ \hline Operating revenues: & \\ \hline & \\ \hline & \\ \hline Operating expenses: & \\ \hline & \\ \hline & \\ \hline & \\ \hline & \\ \hline Total operating expenses & \\ \hline & \\ \hline Other item: & \\ \hline \end{tabular} \begin{tabular}{|l|l|l|l|l|} \hline \multicolumn{5}{|c|}{ H \& H TOOL } \\ \hline \multicolumn{5}{|c|}{ Statement of Stockholders' Equity } \\ \hline & \begin{tabular}{c} Common \\ Stock \end{tabular} & \begin{tabular}{c} Additional \\ Paid-in \\ Capital \end{tabular} & \begin{tabular}{c} Retained \\ Earnings \end{tabular} & \begin{tabular}{c} Total \\ Stockholders' \\ Equity \end{tabular} \\ \hline Balance, January 1, 2023 & & & & \\ \hline & & & & \\ \hline & & & & \\ \hline & & & & \\ \hline Balance, December 31, 2023 & & & & \\ \hline \end{tabular} \begin{tabular}{|l|l|l|l|l|} \hline \multicolumn{2}{|c|}{ B \& H TOOL } \\ \hline \multicolumn{2}{|c|}{ At December 31, 2023 } \\ \hline Assets & & Current liabilities: & \\ \hline Current assets: & & & \\ \hline & & & \\ \hline & & & \\ \hline Total current assets & & & \\ \hline Property, plant and equipment: & & & \\ \hline & & Total current liabilities & \\ \hline & & & \\ \hline Total assets & & & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|} \hline Transaction & \begin{tabular}{c} Type of Effect \\ on Cash Flows \end{tabular} & \begin{tabular}{c} Direction and \\ Amount of \\ Effect \end{tabular} \\ \hline a. & & \\ \hline b. & & \\ \hline c. & & \\ \hline d. & & \\ \hline e. & & \\ \hline f. & & \\ \hline g. & & \\ \hline h. & & \\ \hline i. & & \\ \hline j. & & \\ \hline k. & & \\ \hline l. & & \\ \hline \end{tabular} \begin{tabular}{|l|l|} \hline a. Compute the current ratio for 2023. \\ \hline Current ratio \\ \hline b. Compute the total asset turnover ratio for 2023. \\ \hline Total asset turnover \\ \hline c. Compute the net profit margin ratio for 2023. \\ \hline Net profit margin & % \\ \hline \end{tabular}