Question

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The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company. Nelson Company uses a perpetual inventory system. It categorizes the following accounts as selling expenses: Depreciation Expense—Store Equipment, Sales Salaries Expense, Rent Expense—Selling Space, Store Supplies Expense, and Advertising Expense. It categorizes the remaining expenses as general and administrative.
  

NELSON COMPANY Unadjusted Trial Balance January 31
	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
Common stock				5,000
Retained earnings				27,000
Dividends		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
Sales salaries expense		17,500
Office salaries expense		17,500
Insurance expense		0
Rent expense—Selling space		7,500
Rent expense—Office space		7,500
Store supplies expense		0
Advertising expense		9,800
Totals	$	169,200	$	169,200

  
Additional Information:

1. Store supplies still available at fiscal year-end amount to $1,750.
2. Expired insurance, an administrative expense, is $1,400 for the fiscal year.
3. Depreciation expense on store equipment, a selling expense, is $1,525 for the fiscal year.
4. 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 the year ended January 31.
3. Prepare a single-step income statement for the year ended January 31.

Answer 1

1. Preparing Adjusting Entries:-

Nelson Company

General Journal (Adjusting Entries)

For the Year Ended January 31

Date	Accounts Title	Debit	Credit
January 31 (a)	Store Supplies Expenses	$4,050
	Store Supplies		$4,050
January 31 (b)	Insurance Expenses	$1,400
	Prepaid Insurance		$1,400
January 31 (c)	Depreciation Expenses	$1,525
	Accumulated Depreciation		$1,525
January 31 (d)	Cost of Goods Sold	$1,600
	Merchandise Inventory		$1,600

Note:-

Store Supplies Expenses=(Store Supplies- Store Supplies at the end)

=$(5,800-1,750)=$4,050

Cost of Goods Sold=(Merchandise Inventory- Merchandise Inventory at the end)

=$(12,500-10,900)=$1,600

2. Preparing Multi Step Income Statement:-

Nelson Company

Multi Step Income Statement

For the Year Ended January 31,2017

Accounts Title	Amount	Amount
Revenue:-
Sales	$111,950
Less:- Sales Discounts	(2,000)
Less:- Sales Returns and Allowances	(2,200)
Net Sales	$107,750
Less:- Cost of Goods Sold (38,400+1,600)	(40,000)
Gross Profit		$67,750
Expenses:-
Selling Expenses:-
Depreciation Expenses- Store Equipment	1,525
Salaries Expenses	17,500
Rent Expenses	7,500
Store Supplies Expenses	4,050
Advertising Expenses	9,800
Total Selling Expenses	$40,375
General and Administrative Expenses:-
Rent Expenses	7,500
Salaries Expenses	17,500
Insurance Expenses	1,400
Total General and Administrative Expenses	$26,400
Total Expenses		$(66,775)
Net Income		$975

3. Preparing Single Step Income Statement:-

Nelson Company

Single Step Income Statement

For the Year Ended January 31,2017

Accounts Title	Amount	Amount
Revenue:-
Sales	$111,950
Less:- Sales Discounts	(2,000)
Less:- Sales Returns and Allowances	(2,200)
Net Sales	$107,750
Less:- Cost of Goods Sold	(40,000)
Gross Profit		$67,750
Expenses:-
Depreciation Expense- Store Equipment	1,525
Salaries Expenses	35,000
Insurance Expenses	1,400
Rent Expenses	15,000
Store Supplies Expenses	4,050
Advertising Expenses	9,800
Total Expenses		$(66,775)
Net Income		$975

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