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	$	32,550
Merchandise inventory		14,000
Store supplies		5,600
Prepaid insurance		2,300
Store equipment		42,900
Accumulated depreciation—Store equipment				$	18,000
Accounts payable					17,000
Common stock					3,200
Retained earnings					16,000
Dividends		2,050
Sales					141,750
Sales discounts		1,850
Sales returns and allowances		2,200
Cost of goods sold		38,000
Depreciation expense—Store equipment		0
Salaries expense		29,000
Insurance expense		0
Rent expense		16,000
Store supplies expense		0
Advertising expense		9,500
Totals	$	195,950		$	195,950

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:

1. Store supplies still available at fiscal year-end amount to $1,800.
2. Expired insurance, an administrative expense, for the fiscal year is $1,500.
3. Depreciation expense on store equipment, a selling expense, is $1,600 for the fiscal year.
4. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,800 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. Adjusting Journal entries
Date	General Journal	Debit	Credit
Jan. 31	Store Supplies expenses                      [$5,600 - $1800]	$3,800
	Store Supplies		$3,800
Jan. 31	Insurance Expense	$1,500
	Prepaid Insurance		$1,500
Jan. 31	Depreciation expense - Store Equipment	$1,600
	Accumulated Depreciation - Store Equipment		$1,600
Jan. 31	Cost of Goods Sold	$3,200
	Merchandise Inventory          [$14,000 - $10,800]		$3,200

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2. Multiple-step income statement for the fiscal year 2017.
NELSON COMPANY
Income Statement
For the Year Ended January 31, 2017
	Debit	Credit
Sales		$141,750
Less: Sales discount	$1,850
Less: Sales Returns and Allowances	$2,200	$4,050
Net Sales                            [Sales - Sales discount - Sales returns and allowances]		$137,700
Cost of Goods Sold            [$38,400 + Inventory shrinkage = $38,000 + $3,200]		$41,200
Gross Profit                        [Net sales - Cost of Goods Sold]		$96,500
Expenses:
Selling expenses:
Advertising expense	$9,500
Depreciation expense - Store equipment           [Refer 3rd journal entry]	$1,600
Sales salaries expense                     [$29,000 / 2]	$14,500
Rent expense - Selling Space           [$16,000 / 2]	$8,000
Store Supplies expense                     [Refer 1st journal entry]	$3,800
Total selling expenses	$37,400
General and Administrative expenses:
Insurance expense                            [Refer 2nd journal entry]	$1,500
Office salaries expense                     [$29,000 / 2]	$14,500
Rent Expense - Office Space            [$16,000 / 2]	$8,000
Total general and administrative expenses	$24,000
Total expenses        [$37,400 + $24,000]		$61,400
Net Income                      [Gross Profit - Total expenses]		$35,100

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3. Single-step income statement for fiscal year 2017
NELSON COMPANY
Income Statement
For the Year Ended January 31, 2017
	Debit	Credit
Net Sales                                                       [Refer multiple-step income statement]		$137,700
Expenses:
Cost of Goods Sold                                     [Refer multiple-step income statement]	$41,200
Selling expenses                                          [Refer multiple-step income statement]	$37,400
General and Administrative expenses          [Refer multiple-step income statement]	$24,000
Total expenses		$102,600
Net Income		$35,100