Brothers Mike and Tim Hargen began operations of their tool and die shop (H & H Tool, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2017, follows: Account Titles Debit Credit
Cash 10,000
Accounts receivable 9,000
Supplies 18,000
Land
Equipment 85,000
Accumulated depreciation (on equipment) 15,000
Other assets (not detailed to simplify)7,000
Accounts payable
Wages payable
Interest payable
Income taxes payable
Long-term notes payable
Common stock (8,000 shares, $.50 par value) 4,000
Additional paid-in capital 87,000
Retained earnings 23,000
Service revenue
Depreciation expense
Supplies expense
Wages expense
Interest expense
Income tax expense
Remaining expenses (not detailed to simplify)
Totals 129,000 129,000
Transactions during 2017 follow:
a. Borrowed $15,000 cash on a 5-year, 8 percent note payable, dated March 1, 2017.
b. Purchased land for a future building site on March 15, 2017; paid cash, $18,000.
c. Earned $271,000 in revenue. Transactions dated August 30, 2017 , including $56,000 on credit and the rest in cash.
d. Sold 4,000 additional shares of capital stock for cash at $1 market value per share on January 1, 2017.
e. Incurred $128,000 in remaining expenses for 2017, invoices dated October 15, 2017, including $27,000 on credit and the rest paid in cash.
f. Collected accounts receivables on November 10, 2017, $41,000.
g. Purchased other assets on November 15, 2017, $18,000 cash.
h. Purchased supplies on account for future use on December 1, 2017, $30,000.
i. Paid accounts payable on December 15, 2017, $28,000.
j. Signed a three-year $36,000 service contract on December 17, 2017 to start February 1, 2018.
k. Declared and paid cash dividends on December 20, 2017, $28,000.
l. Data for adjusting entries:
m. Supplies counted on December 31, 2017, $21,000.
n. Depreciation for the year on the equipment, $17,000.
o. Interest accrued on notes payable (to be computed).
p. Wages earned by employees since the December 24 payroll but not yet paid, $20,000.
q. Income tax expense, $16,000, payable in 2018.
Required:
1. Prepare journal entries for the transactions.
2. Prepare an income statement.
3. Compute the following ratios:
Current ratio
Total asset turnover
Net profit margin

H & H Tool, Inc.

1. Journal Entries:

a. Debit Cash $15,000

Credit Note Payable $15,000

To record the receipt of a 5-year, 8% note payable.

b. Debit Land $18,000

Credit Cash $18,000

To record the purchase of land.

c. Debit Cash $215,000

Debit Accounts Receivable $56,000

Credit Service Revenue $271,000

To record services revenue earned.

d. Debit Cash $4,000

Credit Common Stock $2,000

Credit Additional Capital $2,000

To record the issue of additional shares at $1 each.

e. Debit Remaining expenses $128,000

Credit Cash $101,000

Credit Accounts Payable $27,000

To record the expenses incurred.

f. Debit Cash $41,000

Credit Accounts Receivable $41,000

To record cash collection from customers.

g. Debit Other Assets $18,000

Credit Cash $18,000

To record the purchase of other assets.

h. Debit Supplies $30,000

Credit Accounts Payable $30,000

To record the purchase of supplies on account.

i. Debit Accounts Payable $28,000

Credit Cash $28,000

To record the payment on account.

j. No Journal Required

k. Debit Dividends $28,000

Credit Cash $28,000

To record the payment of dividends.

Adjusting entries:

m. Debit Supplies Expense $27,000

Credit Supplies $27,000

To record supplies used.

n. Debit Depreciation Expense - Equipment $17,000

Credit Accumulated Depreciation - Equipment $17,000

To record depreciation expense.

o. Debit Interest Expense $1,000

Credit Interest Payable $1,000

To record the accrued interest expense for the year.

p. Debit Wages Expense $20,000

Credit Wages Payable $20,000

To record accrued wages.

q. Debit Income Tax Expense $16,000

Credit Income Tax Payable $16,000

To record accrued income tax expense.

2. Income Statement as of December 31, 2017

Service revenue                                              $271,000

Depreciation expense                       17,000

Supplies expense                             27,000

Wages expense                               20,000

Interest expense                                 1,000

Income tax expense                         16,000

Remaining expenses

 (not detailed to simplify)              128,000

Total expenses                                               $237,000

Net income                                                       $34,000

Retained earnings, January 1, 2017        $23,000

Net income                                                 34,000

Dividends                                                   28,000

Retained earnings, December 31, 2017 $29,000

3. Current Ratio = Current Assets/Current Liabilities

= $137,000/$66,000

= 2.08

Total asset turnover =  Total Revenue/Total Assets

= $271,000/$208,000

= 1.3

Net Profit Margin = $34,000/$271,000 * 100

= 12.5%

Explanation:

a) Data and Calculations:

Trial balance on January 1, 2017, follows:

Account Titles                                        Debit     Credit

Cash                                                   $10,000

Accounts receivable                             9,000

Supplies                                               18,000

Land

Equipment                                          85,000

Accumulated depreciation (on equipment)      $15,000

Other assets (not detailed to simplify)7,000

Accounts payable

Wages payable

Interest payable

Income taxes payable

Long-term notes payable

Common stock (8,000 shares, $.50 par value)   4,000

Additional paid-in capital                                     87,000

Retained earnings                                               23,000

Service revenue

Depreciation expense

Supplies expense

Wages expense

Interest expense

Income tax expense

Remaining expenses (not detailed to simplify)

Totals                                              129,000   129,000

December 31:

Cash balance = $92,000 ($10,000+15,000-18,000+215,000+4,000-101,000+41,000-18,000 -28,000-28,000)

Accounts Receivable = $24,000 (9,000+56,000 -41,000)

Supplies = $21,000 ($18,000 + 30,000 - 27,000)

Land = $18,000

Accumulated Depreciation = $32,000 ($17,000 + 15,000)

Other assets = $25,000 (7,000 +18,000)

Accounts Payable = $29,000 ($27,000 + 30,000 - 28,000)

Wages Payable = $20,000

Interest Payable = $1,000

Income Tax Payable $16,000

Long-term Notes Payable = $15,000

Common stock = $6,000 ($4,000 + 2,000)

Additional capital = $89,000 ($87,000 + 2,000)

Service Revenue = $271,000

Depreciation expense = $17,000

Supplies expense = $27,000

Wages expense= $20,000

Interest expense = $1,000

Income tax expense $16,000

Remaining expenses $128,000

Dividends = $28,000

Adjusted Trial balance on December 31, 2017, follows:

Account Titles                                          Debit     Credit

Cash                                                     $92,000

Accounts receivable                              24,000

Supplies                                                  21,000

Land                                                        18,000

Equipment                                             85,000

Accumulated depreciation (on equipment)      $32,000

Other assets (not detailed to simplify)25,000

Accounts payable                                                29,000

Wages payable                                                    20,000

Interest payable                                                      1,000

Income taxes payable                                          16,000

Long-term notes payable                                    15,000

Common stock (8,000 shares, $.50 par value)  6,000

Additional paid-in capital                                    89,000

Retained earnings                                              23,000

Service revenue                                                271,000

Depreciation expense                       17,000

Supplies expense                             27,000

Wages expense                               20,000

Interest expense                                 1,000

Income tax expense                         16,000

Remaining expenses

 (not detailed to simplify)              128,000

Dividends                                        28,000

Totals                                            502,000   502,000

Current Assets:

Cash                             $92,000

Accounts receivable      24,000

Supplies                          21,000

Total Current Assets $137,000

Land                               18,000

Equipment                    85,000

Accumulated Depr.    (32,000)

Total long-term assets = $71,000

Total assets = $208,000

Current Liabilities:

Accounts payable         $29,000

Wages payable               20,000

Interest payable                 1,000

Income taxes payable     16,000

Total current liabilities $66,000

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