Continuing Problem

CONTINUING PROBLEM
CON4-1.
Adjusting Entries:
Debit Credit
a. Wages expense (+E, -SE) 7,500

Wages payable (+L) 7,500
b. Unearned revenue (-L) 4,000

Cleaning service revenue (+R, +SE) 4,000
Amount: $24,000 x 2/12 = $4,000 earned
c. Utilities expense (+E, -SE) 520

Utilities payable (+L) 520
d. Interest expense (+E, -SE) 2,000

Interest payable (+L) 2,000
Amount: $30,000 principal x .10 x 8/12 months
e. Accounts receivable (+A) 800

Cleaning service revenue (+R, +SE) 800
f. Insurance expense (+E, -SE) 875

Prepaid insurance (-A) 875
Amount: $4,200 x 5/24 months
g. Supplies expense (+E, -SE) 22,300

Supplies (-A) 22,300
Amount: $2,400 beginning + $23,000
purchased - $3,100 ending = $22,300 used
h. Depreciation expense (+E, -SE) 8,300

Accumulated depreciation (+XA, -A) 8,300
i. Interest receivable (+A) 110

Interest revenue (+R, +SE) 110
COMPREHENSIVE PROBLEMS
COMP4–1. Req. 1, 2, 3, and 5 T-accounts (in thousands)

Cash Accounts Receivable Supplies
Bal. 6 b 13 Bal. 5 Bal. 13
a 15 e 94 c 52 f 34 h 27 l 22
c 163 g 15
d 4 i 26
f 34 k 25
Bal. 49 Bal. 23 Bal. 18
Accumulated
Land Equipment Depreciation
Bal. 0 Bal. 78 Bal. 8
b 13 m 10
Bal. 13 Bal. 78 Bal. 18
Other Assets Accounts Payable Income Tax Payable
g 15 i 26 e 20 p 11
h 27
Bal. 22 Bal. 21 Bal. 11
Wages Payable Interest Payable LT Notes Payable
o 16 n 1 a 15
Common Additional Paid-in Retained
Stock Capital Earnings
d 2 d 2 k 25
CE 41
Service Depreciation Income Tax Interest
Revenue Expense Expense Expense
Bal. 0 Bal. 0 Bal. 0 Bal. 0
CE 215 c 215 m 10 CE 10 p 11 CE 11 n 1 CE 1
Bal. 0 Bal. 0 Bal. 0 Bal. 0
Supplies Wages Remaining
Expense Expense Expenses
l 22 CE 22 o 16 CE 16 e 114 CE 114
COMP4–1. (continued)
Req. 2
a. Cash (+A)........................................................... 15,000
Notes payable (+L)................................... 15,000
b. Land (+A)............................................................ 13,000

Cash (A)................................................. 13,000
c. Cash (+A)........................................................... 163,000

Accounts receivable (+A)................................... 52,000
Service revenue (+R, +SE)...................... 215,000
d. Cash (+A)........................................................... 4,000

Common stock (+SE)............................... 2,000
Additional paid-in capital (+SE)………….. 2,000
e. Remaining expenses (+E, SE)......................... 114,000

Accounts payable (+L)............................. 20,000
Cash (A)................................................. 94,000
f. Cash (+A)........................................................... 34,000

Accounts receivable (A)......................... 34,000
g. Other assets (+A)............................................... 15,000

Cash (A)................................................. 15,000
h. Supplies (+A)...................................................... 27,000

Accounts payable (+L)............................. 27,000
i. Accounts payable (L)........................................ 26,000

Cash (A)................................................. 26,000
j. No entry required; no revenue earned in 2017.
k. Retained earnings (SE).................................... 25,000

Cash (A)................................................. 25,000
Req. 3
l. Supplies expense (+E, SE).............................. 22,000

Supplies (A)............................................. 22,000
($40,000 in account – $18,000 at year end)
m. Depreciation expense (+E, SE)........................ 10,000

Accumulated depreciation (+XA, A)........ 10,000
n. Interest expense (+E, SE)................................ 1,000

Interest payable (+L)................................. 1,000
($15,000 x .08 x 10/12)
o. Wages expense (+E, SE)................................. 16,000

Wages payable (+L).................................. 16,000
p. Income tax expense (+E, SE).......................... 11,000

Income taxes payable (+L)........................ 11,000
Req. 4
H & H TOOL, INC.
Income Statement
For the Year Ended December 31, 2017
Operating Revenues:
Service revenue $215,000
Operating Expenses:
Depreciation expense 10,000
Supplies expense 22,000
Wages expenses 16,000
Remaining expenses 114,000
Total operating expenses 162,000
Operating Income 53,000
Other Item:
Interest expense 1,000
Pretax income 52,000
Income tax expense 11,000
Net Income $ 41,000
Earnings per share $3.42

[$41,000 ÷ 12,000 shares all year]
H & H TOOL, INC.

Statement of Stockholders' Equity
For the Year Ended December 31, 2017
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
Balance, January 1, 2017 $4,000 $80,000 $ 17,000 $101,000
Additional stock issuance 2,000 2,000 4,000
Net income 41,000 41,000
Dividends declared (25,000) (25,000)
Balance, December 31, 2017 $6,000 $82,000 $33,000 $121,000
H & H TOOL, INC.

Balance Sheet
At December 31, 2017
Assets Liabilities and Stockholders’ Equity

Current Assets: Current Liabilities:
Cash $ 49,000 Accounts payable $ 21,000
Accounts receivable 23,000 Interest payable 1,000
Supplies 18,000 Wages payable 16,000
Total current assets 90,000 Income taxes payable 11,000
Land 13,000 Total current liabilities 49,000
Notes payable 15,000
Equipment 78,000 Total liabilities 64,000
Less: Accumulated deprec. (18,000) Stockholders' Equity:
Net book value 60,000 Common stock 6,000
Other assets 22,000 Additional paid-in cap. 82,000
Retained earnings 33,000
Total stockholders'
equity 121,000
Total liabilities and
Total assets $185,000 stockholders' equity $185,000
Req. 5
Type of Effect on Direction and

Transaction Cash Flows Amount of Effect
a. F +15,000
b. I -13,000
c. O +163,000
d. F +4,000
e. O -94,000
f. O +34,000
g. I -15,000
h. NE NE
i. O -26,000
j. NE NE
k. F -25,000
Req. 6
December 31, 2017, Closing Entry

Service revenue (R).......................................... 215,000
Retained earnings (+SE) .......................... 41,000
Depreciation expense (E) ....................... 10,000
Interest expense (E) ............................... 1,000
Supplies expense (E) ............................. 22,000
Wages expense (E) ................................ 16,000
Remaining expenses (E) ........................ 114,000
Income tax expense (E) ......................... 11,000
Req. 7
(a) Current ratio = Current assets  Current liabilities

= $90,000  $49,000
= 1.84
This suggests that H & H Tool, Inc., has sufficient current assets to pay current
liabilities.
(b) Total asset turnover = Sales  Average total assets

= $215,000  [($101,000 + $185,000)  2]
= $215,000  $143,000
= 1.50
This suggests that H & H Tool, Inc. generated $1.50 for every dollar of assets.
(c) Net profit margin = Net income  Sales

= $41,000  $215,000
= 0.191 or 19.1%
This suggests that H & H Tool, Inc. earns $0.191 for every dollar in sales that it
generates.
For all of the ratios, a comparison across time and a comparison against an
industry average or competitors will need to be analyzed to determine how liquid
(current ratio) the company is and how efficient (total asset turnover) and how
effective (net profit margin) H & H Tool’s management is.

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CONTINUING PROBLEM

a. Wages expense (+E, -SE) 7,500

b. Unearned revenue (-L) 4,000

c. Utilities expense (+E, -SE) 520

d. Interest expense (+E, -SE) 2,000

e. Accounts receivable (+A) 800

f. Insurance expense (+E, -SE) 875

g. Supplies expense (+E, -SE) 22,300

h. Depreciation expense (+E, -SE) 8,300

i. Interest receivable (+A) 110

COMP4–1. Req. 1, 2, 3, and 5 T-accounts (in thousands)

b. Land (+A)............................................................ 13,000

c. Cash (+A)........................................................... 163,000

d. Cash (+A)........................................................... 4,000

e. Remaining expenses (+E, SE)......................... 114,000

f. Cash (+A)........................................................... 34,000

g. Other assets (+A)............................................... 15,000

h. Supplies (+A)...................................................... 27,000

i. Accounts payable (L)........................................ 26,000

j. No entry required; no revenue earned in 2017.

k. Retained earnings (SE).................................... 25,000

l. Supplies expense (+E, SE).............................. 22,000

m. Depreciation expense (+E, SE)........................ 10,000

n. Interest expense (+E, SE)................................ 1,000

o. Wages expense (+E, SE)................................. 16,000

p. Income tax expense (+E, SE).......................... 11,000

Earnings per share $3.42

H & H TOOL, INC.

H & H TOOL, INC.

Assets Liabilities and Stockholders’ Equity

Type of Effect on Direction and

December 31, 2017, Closing Entry

(a) Current ratio = Current assets  Current liabilities

(b) Total asset turnover = Sales  Average total assets

(c) Net profit margin = Net income  Sales

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