Question

Required information

Problem 5-5A Preparing adjusting entries and income statements; computing gross margin, acid-test, and current ratios LO A1, A2, P3, P4

[The following information applies to the questions displayed below.]

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, 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		15,000
Store supplies		5,700
Prepaid insurance		2,200
Store equipment		42,800
Accumulated depreciation—Store equipment				$	19,350
Accounts payable					13,000
J. Nelson, Capital					15,000
J. Nelson, Withdrawals		2,100
Sales					116,250
Sales discounts		2,100
Sales returns and allowances		2,000
Cost of goods sold		38,000
Depreciation expense—Store equipment		0
Sales salaries expense		15,500
Office salaries expense		15,500
Insurance expense		0
Rent expense—Selling space		7,000
Rent expense—Office space		7,000
Store supplies expense		0
Advertising expense		9,700
Totals	$	163,600		$	163,600

Additional Information:

1. Store supplies still available at fiscal year-end amount to $2,500.
2. Expired insurance, an administrative expense, for the fiscal year is $1,350.
3. Depreciation expense on store equipment, a selling expense, is $1,550 for the fiscal year.
4. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,800 of inventory is still available at fiscal year-end.

Problem 5-5A Part 1, 2 and 3

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