Question

The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company. Nelson company uses a perpetual inventory system. It categorizes the following accounts as selling expenses: Depreciation Expense—Store Equipment, Sales Salaries Expense, Rent Expense—Selling Space, Store Supplies Expense, and Advertising Expense. It categorizes the remaining expenses as general and administrative.

NELSON COMPANY Unadjusted Trial Balance January 31
	Debit			Credit
Cash	$	27,900
Merchandise inventory		13,000
Store supplies		5,800
Prepaid insurance		2,700
Store equipment		42,700
Accumulated depreciation—Store equipment				$	17,200
Accounts payable					16,000
Common stock					5,000
Retained earnings					35,000
Dividends		2,000
Sales					116,200
Sales discounts		2,100
Sales returns and allowances		2,200
Cost of goods sold		38,000
Depreciation expense—Store equipment		0
Sales salaries expense		15,100
Office salaries expense		15,100
Insurance expense		0
Rent expense—Selling space		6,500
Rent expense—Office space		6,500
Store supplies expense		0
Advertising expense		9,800
Totals	$	189,400		$	189,400

Additional Information:

1. Store supplies still available at fiscal year-end amount to $1,700.
2. Expired insurance, an administrative expense, is $1,600 for the fiscal year.
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 $10,100 of inventory is still available at fiscal year-end.

4. Compute the current ratio, acid-test ratio, and gross margin ratio as of January 31. (Round your answers to 2 decimal places.)

1- current ratio

2-acid test ratio

3-gross margin ratio

Answer 1

1.Current ratio = Current assets ÷ Current liabilities = $40,800 ÷ $16.000 = 2.55

2.Quick ratio = Quick assets ÷ Current liabilities = $27,900 ÷ $16,000 = 1.74

3.Gross margin = (Gross profit ÷ Net sales) x 100 = ($71,000 ÷ $111,900) x 100 = 63.45%

Calculations:

Adjusted Trial Balance
Account title	Debit	Credit
Cash	27,900
Merchandise inventory	10,100
Store supplies	1,700
Prepaid insurance	1,100
Store equipment	42,700
Accumulated depreciation—Store equipment		18,800
Accounts payable		16,000
Common stock		5,000
Retained earnings		35,000
Dividends	2,000
Sales		116,200
Sales discounts	2,100
Sales returns and allowances	2,200
Cost of goods sold	40,900
Depreciation expense—Store equipment	1600
Sales salaries expense	15,100
Office salaries expense	15,100
Insurance expense	1600
Rent expense—Selling space	6,500
Rent expense—Office space	6,500
Store supplies expense	4100
Advertising expense	9,800
Totals	191,000	191,000

Current Assets
Cash	27,900
Merchandise inventory	10,100
Store supplies	1,700
Prepaid insurance	1,100
Total current assets	40,800
Quick assets
Cash	27,900
Total quick assets	27,900
Current liabilities
Accounts payable	16,000
Total current liabilities	16,000
Gross profit
Sales	116,200
Sales discounts	-2,100
Sales returns and allowances	-2,200
Net sales	111,900
Cost of goods sold	-40,900
Gross profit	71,000