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.

4. Compute the current ratio, acid-test ratio, and gross margin ratio as of January 31. (Round your answers to 2 decimal places.)

I have the current ratio at 1.47

Acid test ratio of 0.10

I keep getting the gross margin ratio wrong. I keep getting 62.877
or 64.36

please help  

More info?

The margin ratio is definitely wrong after checking my work.

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.

Answer 1

Plase see the couple of adjusting journal entries as well as updated tradng, profit and Loss account.

Adjusting journal entries

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

  Store Supplies Expense Dr 4050

To, Store Supplies Cr 4050

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

Insurance Expense Dr 1400

To, Prepaid Insurance Cr 1400

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

Depreciation Expense Dr 1525

  To, Accumulated depreciation - Store equipment Cr 1525

d) 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.

Cost of Goods Sold Expense Dr 1600

To, Inventory Cr 1600

Please find the below adjusted trial balance;

Pre-Adjustment Trial Balance	Adjustment	Post - Adjusted Trial Balance
Particulars	Debit	Credit	Debit	Credit	Debit	Credit
Cash	$1,000				$1,000
Merchandise Inventory	$12,500				$12,500
Store supplies	$5,800			$4,050	$1,750
Prepaid Insurance	$2,400			$1,400	$1,000
Store equipment	$42,900				$42,900
Accumulated depreciation - Store equipment		$15,250		$1,525		$16,775
Accounts payable		$10,000				$10,000
Common Stock		$5,000				$5,000
Retained Earnings		$27,000				$27,000
Dividends	$2,200				$2,200
Sales		$111,950				$111,950
Sales discounts	$2,000				$2,000
Sales returns and allowances	$2,200				$2,200
Cost of goods sold	$38,400				$38,400
Depreciation express - Store equipment	$-		$1,525		$1,525
Salaries expense	$35,000				$35,000
Insurance expense	$-		$1,400		$1,400
Rent expense	$15,000				$15,000
Store supplies expense	$-		$4,050		$4,050
Advertising expense	$9,800				$9,800
Totals	$169,200	$169,200	$6,975	$6,975	$170,725	$170,725

Please find the below net profit calculation;

Sales		$111,950
Sales discounts	$2,000
Sales returns and allowances	$2,200
Net Sales		$107,750
Cost of goods sold	$38,400
Gross Profit		$69,350
Depreciation express - Store equipment	$1,525
Store supplies expense	$4,050
Salaries expense	$17,500
Rent expense	$7,500
Advertising expense	$9,800
Total Selling Expense		$40,375
Profit before General Expense		$28,975
Salaries expense	$17,500
Insurance expense	$1,400
Rent expense	$7,500
Total General Expense		$26,400
Net Profit		$2,575

Please find the below retained earnings calculation;

Retained earnings
Retained earnings from the beginning	27000
Add: Net profit	2575
Less: Dividend Paid	2200
Retained earnings at the end	27375

Below is the balance sheet for NELSON COMPANY. This is the key to calculate current ratio and Acid test ratio;

Balance Sheet
Liability	Amount	Asset	Amount
Cash	$1,000	Accounts payable	$10,000
Merchandise Inventory	$12,500	Current Liability	$10,000
Store supplies	$1,750
Prepaid Insurance	$1,000	Common Stock	$5,000
Total Current Assets	$16,250	Retained Earnings	$27,375
		Total Equity	$32,375
Store equipment (42,900 - 16,775)	$26,125
less: Accumulated depreciation - Store equipment
	$42,375		$42,375

Calculation for the current ratio;

Current Ratio = Current Asset / Current Liability

Current asset = $16250

Current Liability = $10000

Current Ratio = 1.63

Calculation for Acid Test Ratio;

Acid test ration means things can be quickly convertible in to cash here it is cash and Merchandise Inventory and divided this item by current liablity

Cash + Inventory = 13500

Current liability = 10000

Acid Test Ratio = 1.35

Gross profit Margin Ratio = Gross Profit / Sales

Gross profit = $ 69350

Sales = $ 107,750

Gross profit Margin Ratio = 64.36