Question

Required information

[The following information applies to the questions displayed below.]

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	$	19,200
Merchandise inventory		14,000
Store supplies		5,900
Prepaid insurance		2,700
Store equipment		42,500
Accumulated depreciation—Store equipment				$	16,200
Accounts payable					14,000
Common stock					5,000
Retained earnings					34,000
Dividends		2,050
Sales					115,750
Sales discounts		1,850
Sales returns and allowances		2,150
Cost of goods sold		38,000
Depreciation expense—Store equipment		0
Sales salaries expense		15,800
Office salaries expense		15,800
Insurance expense		0
Rent expense—Selling space		8,000
Rent expense—Office space		8,000
Store supplies expense		0
Advertising expense		9,000
Totals	$	184,950		$	184,950

Additional Information:

1. Store supplies still available at fiscal year-end amount to $1,550.
2. Expired insurance, an administrative expense, is $1,700 for the fiscal year.
3. Depreciation expense on store equipment, a selling expense, is $1,650 for the fiscal year.
4. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,500 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 the year ended January 31.
3. Prepare a single-step income statement for the year ended January 31.

Answer 1

Nelson Company Adjusting Enteries Trans. Particulars a. Supplies Expense a/c Dr. To Store Supplies (Supplies Expensed) 5900 - 1550 Debit in $ Credit in $ 4350 4350 1700 Insurance Expense a/c Dr. To Prepaid Insurance (Insurance expensed) 1700 1650 Depreciation Expense a/c Dr. To Accum. Depre - Store Equip (To record depreciation) 1650 Adjusted Trial Balance For the period ending January 31 Particulars Cash Merchandise Inventory Store Supplies Prepaid Insurance Store Equipment Accum. Depre - Store Equip Accounts Payable Common Stock Retained Earnings Dividends Sales Sales Discounts Sales Returns and Allowances Cost of goods sold Depreciation Expense -Store Equipment Sales Salaries Expense Office Salaries Expense Insurance Expense Rent Expense - Selling Rent Expense - Office Space Store Supplies Expense Advertising Expense Totals Debit in $ Credit in $ 19200 10500 1550 1000 42500 17850 14000 5000 34000 2050 115750 1850 2150 41500 1650 15800 15800 1700 8000 8000 4350 9000 186600 186600 d. Dr. 3500 Cost of goods sold a/c To Inventory (Pilferage) 14000 - 10500 3500

115750 Statement of Income - Single Step For the period ending January 31 Sales Less: Sales Discounts Sales Returns and Allowances Cost of goods sold Depreciation Expense-Store Equipment Sales Salaries Expense Office Salaries Expense Insurance Expense Rent Expense - Selling Rent Expense - Office Space Store Supplies Expense Advertising Expense Net Income 1850 2150 41500 1650 15800 15800 1700 8000 8000 4350 9000 109800 5950 Statement of Income - Multiple Step For the period ending January 31 Sales Sales Discounts Sales Returns and Allowances Net Sales Cost of goods sold Gross Profit 115750 -1850 -2150 111750 -41500 70250 Selling Expenses: Sales Salaries Expense Rent Expense - Selling Store Supplies Expense Advertising Expense Depreciation Expense-Store Equipment 15800 8000 4350 9000 1650 38800 Administrative Expense: Office Salaries Expense Insurance Expense Rent Expense - Office Space Net Income 15800 1700 8000 25500 5950