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:

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

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

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

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.

Required:

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

1

Using the above information prepare adjusting journal entries:

Date	General Journal	Debit	Credit
31-Jan	Store supplies expense (5700-1850)	3,850
	Store supplies		3,850
31-Jan	Insurance expense	1,750
	Prepaid insurance		1,750
31-Jan	Depreciation expense—Store equipment	1,525
	Accumulated depreciation—Store equipment		1,525
31-Jan	Cost of goods sold (15000-10600)	4,400
	Merchandise inventory		4,400

____________________________________________

2. Prepare a multiple-step income statement for fiscal year 2017

NELSON COMPANY
Income Statement
For Year Ended January 31, 2017
Sales		$115,250
Less: Sales discounts	$1,850
Less: Sales returns and allowances	2,100	3,950
Net sales		111,300
Cost of goods sold		42,400
Gross profit		68,900
Expense
Selling expenses
Depreciation expense—Store equipment	1,525
Sales salaries expense	12,900
Rent expense—Selling space	6,500
Store supplies expense	3,850
Advertising expense	9,800
Total selling expenses	34,575
General and administrative expenses
Insurance expense	1,750
Office salaries expense	12,900
Rent expense— Office space	6,500
Total general and administrative expenses	21,150
Total expenses		55,725
Net income		$13,175

__________________________________________________

.
3. Prepare a single-step income statement for fiscal year 2017.

NELSON COMPANY
Income Statement
For Year Ended January 31, 2017
Net sales		$111,300
Expenses
Cost of goods sold	$42,400
Selling expenses	34,575
General and administrative expenses	21,150
Total expenses		98,125
Net income		$13,175