Question

The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company.

NELSON COMPANY Unadjusted Trial Balance January 31, 2017
	Debit			Credit
Cash	$	6,150
Merchandise inventory		15,000
Store supplies		5,700
Prepaid insurance		2,700
Store equipment		42,600
Accumulated depreciation—Store equipment				$	17,550
Accounts payable					14,000
J. Nelson, Capital					18,000
J. Nelson, Withdrawals		2,100
Sales					115,250
Sales discounts		1,850
Sales returns and allowances		2,100
Cost of goods sold		38,000
Depreciation expense—Store equipment		0
Salaries expense		25,800
Insurance expense		0
Rent expense		13,000
Store supplies expense		0
Advertising expense		9,800
Totals	$	164,800		$	164,800

Rent expense and salaries expense are equally divided between selling activities and general and administrative activities. Nelson Company uses a perpetual inventory system.

Additional Information:

a. Store supplies still available at fiscal year-end amount to $1,850.

b. Expired insurance, an administrative expense, for the fiscal year is $1,750.

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

d. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,600 of inventory is still available at fiscal year-end.

1. Using the above information prepare adjusting journal entries:
2. Prepare a multiple-step income statement for fiscal year 2017.
3. Prepare a single-step income statement for fiscal year 2017.

Answer 1

Date	General Journal	Debit	Credit
31-Jan	Store supplies expense	3850
	Store supplies		3850
	(5700-1850)
31-Jan	Insurance expense	1750
	Prepaid insurance		1750
31-Jan	Depreciation expense—Store equipment	1525
	Accumulated depreciation—Store equipment		1525
31-Jan	Cost of goods sold	4400
	Merchandise inventory		4400
	15000-10600

NELSON COMPANY Income Statement For Year Ended January 31 2017
Sales		115250
Less: Sales discounts		1850
Less:Sales returns and allowances		2100
Net Sales		111300
Cost of goods sold (38000+4400)		42400
Gross Profit		68900
Expense
Selling expenses
Depreciation expense—Store equipment	1525
Sales salaries expense (25800/2)	12900
Rent expense—Selling space (13000/2)	6500
Store supplies expense	3850
Advertising expense	9800
Total selling expenses	34575
General and administrative expenses
Insurance expense	1750
Office salaries expense (25800/2)	12900
Rent expense— Office space (13000/2)	6500
Total general and administrative expenses	21150
Total expenses		55725
Net Income		13175

single-step income statement for fiscal year
NELSON COMPANY Income Statement For Year Ended January 31 2017
Net Sales		111300
Expense
Cost of goods sold	42400
Selling Expense	34575
General and administrative expense	21150
Total Expenses		98125
Net Income		13175