Question

In: Accounting

The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company. 1.                       NELSON COMPANY  &nb

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

1.                       NELSON COMPANY             Debit              Credit

2. Cash............................................................$1,000

3. Merchandise Inventory............................... 12,500

4. Store supplies.............................................. 5,800

5. Prepaid Insurance........................................ 2,400

6. Store equipment.......................................... 42,900

7. Accumulated depreciation - Store equipment...................$15,250

8.   Accounts payable.............................................................. 10,000

9.   J. Nelson, Capital.............................................................. 32,000

10. J. Nelson, Withdrawals................................ 2,200

11. Sales.................................................................................. 111,950

12. Sales discounts............................................. 2,000

13. Sales returns and allowances........................ 2,200

14. Cost of goods sold........................................ 38,400

15. Depreciation expense- Store equipment....... 0

16. Salaries expense........................................... 35,000

17. Insurance expense........................................ 0

18. Rent expense................................................ 15,000

19. Store supplies expense................................. 0

20. Advertising expense..................................... 9,800

21. Totals............................................................$169,200.........169,200

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

Required

1. Prepare adjusting journal entries to reflect each of the following:

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

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

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 $10,900 of inventory is still available at fiscal year-end.

2. Prepare a multiple-step income statement for fiscal year 2017 that begins with gross sales and     includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.

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

4. Compute the current ratio, acid-test ratio, and gross margin ratio as of January 31, 2017. (Round ratios to two decimals).

Solutions

Expert Solution

Answer 1.
Adjusting Journal entry
Date Particulars Dr. Amt. Cr. Amt.
a. Store Supplies Expense    4,050.00 $5800 - $1,750
Store Supplies    4,050.00
(Rcord the supplies Expense)
b. Insurance Expense    1,400.00
Prepaid Expense    1,400.00
(Rcord the insurance Expense)
c. Depreciation expense - Store Equip.    1,525.00
Accumulated Depreciation - Store Equip.    1,525.00
(Rcord the depreiation Expense)
d. Cost of Goods Sold    1,600.00 $12,500 - $10,900
Merchandise Inventory    1,600.00
(record the shrinkage of inventory)
Answer 2.
Nelson Company
Income Statement
For the Year Ended Jan 31, 2017
Sales Revenue
Sales        111,950.00
Less: Sales Return & Allowances            2,200.00
Less: Sales Discounts            2,000.00
Net Sales        107,750.00
Cost of Goods Sold          40,000.00
Gross Margin          67,750.00
Selling Expenses
Depreciation Expense - Store Equipment            1,525.00
Sales Salaries Expense          17,500.00
Rent Expense - Selling Space            7,500.00
Store Supplies Expense            4,050.00
Advertising Expense            9,800.00
Total selling expense          40,375.00
Administrative Expense
Insurance Expense            1,400.00
Office Salaries Expense          17,500.00
Rent Expense - Office Space            7,500.00
Total Administrative Expense          26,400.00
Net Operating Income                975.00
Answer 3.
Nelson Company
Single Step Income Statement
For the Year Ended Jan 31, 2017
Net Sales        107,750.00
Expenses
Cost of Goods Sold          40,000.00
Total selling expense          40,375.00
Total Administrative Expense          26,400.00
Total expense        106,775.00
Net Operating Income                975.00
Answer 4.
Current Ratio = Current Assets / Crurrent Liabilities
Cash            1,000.00
Merchandise Inventory          10,900.00
Store supplies            1,750.00
Prepaid Insurance            1,000.00
Total Current Assets          14,650.00
Accounts Payable          10,000.00
Total Current Liabilities          10,000.00
Current Ratio = $14,650 / $10,000
Current Ratio = 1.47 : 1 (Approx)
Acid Test Ratio = Quick assets / Current Liabilities
Cash            1,000.00
Total Current Assets            1,000.00
Acid Test Ratio = $1,000 / $10,000
Acid Test Ratio = 0.10 : 1 (Approx.)
Gross Margin Ratio = Gross Margin / Sales
Gross Margin Ratio = $67,750 / $107,750
Gross Margin Ratio = 62.88% (Approx.)

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