In: Accounting
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).
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.) |