NAME: ________________________

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.
c. 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
3. 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 years $15,000 Jan. 1, 2008
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.
6. 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.
7. 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.
2. 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).

Check Figures:

 2017 Gross Profit Percentage: 41.375%

 2017 Current Ratio: 1.9799
 2017 Profit Margin: 9.376%
 Harriet's Hats
Balance Sheet
For the Year Ended December 31, 2016
Assets
Cash $ 64,000
Accounts Receivable 187,000
Less: Allowance for Doubtful Accounts (18,700)
Net Accounts Receivable 168,300
Prepaid Rent 25,200
Inventory 76,000
Total Current Assets $ 333,500

Property, Plant, and Equipment 252,000

Less: Accumulated Depreciation (172,900)
Net Property, Plant, and Equipment 79,100
Total Assets $ 412,600

Liabilities and Owner’s Equity

Accounts Payable $ 54,000
Wages Payable 18,000
Interest Payable 3,750
Income Taxes Payable 32,500
Notes Payable 90,000
Total Current Liabilities $ 198,250

Common Stock (5,000 shares outstanding, $1 par) 5,000

Additional Paid In Capital 15,000
Retained Earnings 194,350
Total Liabilities and Owner’s Equity $ 412,600
 Harriet's Hats
Journal Entries
Date Account Debit Credit
 Harriet's Hats
Journal Entries
Date Account Debit Credit
 Harriet's Hats
Journal Entries
Date Account Debit Credit
 Harriet's Hats
Journal Entries
Date Account Debit Credit
CLOSING ENTRIES
 Cash Accounts Receivable Allowance for Doubtful Accounts
$ 64,000 $ 187,000 $ 18,700

Prepaid Rent Inventory Property, Plant, and Equipment

$ 25,200 $ 76,000 $ 252,000

Accumulated Depreciation Accounts Payable Wages Payable

$ 172,900 $ 54,000 $ 18,000

Interest Payable Income Taxes Payable Notes Payable

$ 3,750 $ 32,500 $ 90,000

Common Stock Additional Paid In Capital Retained Earnings

$ 5,000 $ 15,000 $ 194,350
 Sales Revenue Purchases Cost of Goods Sold

Rent Expense Interest Expense Bad Debts Expense

Depreciation Expense Wages Expense Other Expenses

Gain/Loss on Sale of Equipment Income Tax Expense Dividends

 Harriet's Hats Harriet's Hats
Income Statement Balance Sheet
For the Year Ended December 31, 2017 As of December 31, 2017
Sales Assets
Less: Cost of Goods Sold Cash
Gross Profit Accounts Receivable
Less: Allowance for Doubtful Accounts
Operating Expenses Net Accounts Receivable
Rent Expense Prepaid Rent
Interest Expense Inventory
Bad Debts Expense Total Current Assets
Depreciation Expense
Wages Expense Property, Plant, and Equipment
Other Operating Expenses Less: Accumulated Depreciation
Total Operating Expenses Net Property, Plant, and Equipment
Total Assets
Other gains and losses
Gain/Loss on sale of equipment Liabilities and Owner’s Equity
Accounts Payable
Income before income taxes Wages Payable
Income taxes Interest Payable
Net Income Income Taxes Payable
Notes Payable
Basic Earnings Per Share $ Total Current Liabilities

Harriet's Hats Common Stock (__________ Shares Outstanding, ___ par)

Statement of Retained Earnings Additional Paid In Capital
For the Year Ended December 31, 2017 Retained Earnings
Beginning Retained Earnings Total Liabilities and Owner’s Equity
Plus: Net Income
Less: Dividends
Ending Retained Earnings