Question

The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company.  

  

NELSON COMPANY Unadjusted Trial Balance January 31, 2017
	Debit		Credit
Cash	$	1,000
Merchandise inventory		12,500
Store supplies		5,800
Prepaid insurance		2,400
Store equipment		42,900
Accumulated depreciation—Store equipment			$	15,250
Accounts payable				10,000
J. Nelson, Capital				32,000
J. Nelson, Withdrawals		2,200
Sales				111,950
Sales discounts		2,000
Sales returns and allowances		2,200
Cost of goods sold		38,400
Depreciation expense—Store equipment		0
Salaries expense		35,000
Insurance expense		0
Rent expense		15,000
Store supplies expense		0
Advertising expense		9,800
Totals	$	169,200	$	169,200

  
Rent expense and salaries expense are equally divided between selling activities and general and administrative activities. Nelson Company uses a perpetual inventory system.
  
Additional Information:

Store supplies still available at fiscal year-end amount to $1,750.

Expired insurance, an administrative expense, for the fiscal year is $1,400.

Depreciation expense on store equipment, a selling expense, is $1,525 for the fiscal year.

To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,900 of inventory is still available at fiscal year-end.

Required:

1. Using the above information prepare adjusting journal entries:
2. Prepare a multiple-step income statement for fiscal year 2017.
3. Prepare a single-step income statement for fiscal year 2017.

4. current ratio, Acid test ratio, Gross margin ratio

Answer 1

	Journal Entries
	Date	General Journal	Debit	Credit
	31-Jan	Store Supplies Expense	4050
		To Store Supplies		4050
		(5800-1750)
	31-Jan	Insurance Expense	1400
		To Prepaid Insurance		1400
	31-Jan	Depreciation Expense - Store Equipment	1525
		To Accumulated Depreciation - Store Equipment		1525
	31-Jan	Cost of Goods Sold	1600
		To Merchandise Inventory		1600
2	NELSON COMPANY
	INCOME STATEMENT
	FOR YEAR ENDED JANUARY 31, 2017
	Sales		$111,950
	Less : Sales Discounts	$2,000
	Sales Returns and Allowances	2200	$4,200
	Net Sales		$107,750
	Cost of Goods Sold		40000
	Gross Profit		$67,750
	Expense
	Selling Expenses
	Depreciation Expense - Store Equipment	1525
	Sales salaries expense	17500
	Rent Expense - selling space	7500
	Store Supplies expense	4050
	Advertising Expense	9800
	Total Selling Expenses	40375
	General and administrative expenses
	Insurance expense	1400
	Office salaries expense	17500
	Rent Space - Office Space	7500
	Total General and administrative expenses	26400
	Total Expenses		66775
	Net Income		$975
3	NELSON COMPANY
	INCOME STATEMENT
	FOR YEAR ENDED JANUARY 31, 2017
	Net Sales		$107,750
	Expenses
	Cost of Goods Sold	$40,000
	Selling Expenses	40375
	General and administrative expenses	26400
	Total Expenses		$106,775
	Net Income		$975
4	Current Ratio = Current Assets/Current Liabilities
	(1000+10900+1750+1000)/(10000)
	1.47
	Acid test Ratio = (1000)/10000	0.10
	Gross Margin Ratio = 67750/107750	0.63