Question

Note:   Rent and salary expenses are divided equally between general/administrative and selling activities. Bigelow uses a perpetual inventory system

1.   Prepare a fiscal year 2012 multiple-step income statement. For distinguished performance, prepare both multiple- and single-step income statements.

BIGELOW COMPANY Unadjusted Trial Balance April 30, 2012 (Fiscal year-end)
	Debit	Credit
Cash........................................................................	$2,150
Merchandise inventory..............................................	12,100
Store supplies..........................................................	4,600
Prepaid insurance.....................................................	2,100
Store equipment.......................................................	42,350
Accumulated depreciation—Store equipment.............		$12,000
Accounts payable.....................................................		8,700
Common stock.........................................................		4,500
Retained earnings.....................................................		25,400
Dividends................................................................	1,800
Sales.......................................................................		108,500
Sales discounts........................................................	950
Sales returns and allowances....................................	1,750
Cost of goods sold..................................................	36,300
Depreciation expense—Store equipment...................	0
Salaries expense......................................................	32,500
Insurance expense....................................................	0
Rent expense...........................................................	13,800
Store supplies expense............................................	0
Advertising expense.................................................	8,700	_______
Totals......................................................................	$159,100	$159,100

1.   Prepare adjusting journal entries for the following:
a.   $1,700 of store supplies remaining at the end of the fiscal year.
b.   $1,800 of expired insurance for the fiscal year (administrative expense).
c.   $1,250 depreciation expense on store equipment for the fiscal year (selling expense).
d.   $11,200 of merchandise inventory remaining at the end of the fiscal year (based on a physical count to estimate shrinkage).

1.   Compute the following ratios as of April 30, 2012.
a.   Current ratio.
b.   Acid test ratio.
[Compute the ratios here.]
2.   For distinguished performance, compute the gross margin ratio.
[Compute the ratio here.]

Answer 1

1)
General Journal	Debit	Credit
Store supplies expense	1700
Store supplies		1700
Insurance expense	1800
Prepaid insurance		1800
Depreciation expense-Store equipment	1250
Accumulated depreciation-Store equipment		1250
Cost of goods sold (12100 - 11,200)	900
Merchandise inventory		900
2)
BIGELOW COMPANY
Multi Income Statement
For Year Ended April 30, 2012
Sales.		108,500
Less: Sales discounts	950
Less: Sales returns and allowances	1,750	2,700
Net Sales		105,800
Less: Cost of good Sold (36300 + 900)		37200
Gross Profit		68,600
Expense
Selling expenses
Advertising expense.	8700
Depreciation expense-Store equipment	1250
Rent expense-Selling space	6900
Sales salaries expense	16250
Store supplies expense	1700
Total Selling Expense		34800
General and administrative expenses
Insurance expense	1800
Office salaries expense  (32500/2)	16250
Rent expense-Office space (13800/2)	6900
Total general and administrative expenses		24950
Total expenses		59750
Net Income		8,850
BIGELOW COMPANY
Single Income Statement
For Year Ended April 30, 2012
Net sales		105,800
Expenses
Cost of Good Sold	37200
Selling Expenses	34800
general and administrative expenses	24950
Total expenses		96950
Net Income		8,850

4)
Current Ratio = Current Assets/ Current Liabilities
Current Ratio = 15350/8700	1.76
Cash	2150
Merchandise inventory (12100 -900)	11200
Store supplies	1700
Prepaid insurance.(2100 -1800)	300
Current Assets	15350
Current Liabilities = Accounts payable	8700
Acid test Ratio = (Current assets - Inventory )/ Current Liabilities	0.48
Gross Margin Ratio = GP/sales =  68600/105800	64.84%