Question

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	$	13,250
Merchandise inventory		14,000
Store supplies		5,900
Prepaid insurance		2,800
Store equipment		42,700
Accumulated depreciation—Store equipment				$	18,950
Accounts payable					14,000
Common stock					3,000
Retained earnings					27,000
Dividends		2,300
Sales					115,500
Sales discounts		1,800
Sales returns and allowances		2,100
Cost of goods sold		38,000
Depreciation expense—Store equipment		0
Sales salaries expense		14,400
Office salaries expense		14,400
Insurance expense		0
Rent expense—Selling space		8,500
Rent expense—Office space		8,500
Store supplies expense		0
Advertising expense		9,800
Totals	$	178,450		$	178,450

Additional Information:

1. Store supplies still available at fiscal year-end amount to $1,900.
2. Expired insurance, an administrative expense, is $1,450 for the fiscal year.
3. Depreciation expense on store equipment, a selling expense, is $1,650 for the fiscal year.
4. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,300 of inventory is still available at fiscal year-end.

Problem 4-5A Parts 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