Question

Required information The following information applies to the questions displayed below The following unad usted trial balance is prepared at fiscal year-end'or Nelson Company Ne son company uses a perpetual Inventory system. It categorizes the following accounts as selling expenses Depreciation Expense-Store Equipment Sales Salaries Expense, Rent Expense-seng 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 $ 17,050 Merchandise inventory 12,500 Store supplies 5.500 Prepaid Insurance 2,500 Store equipment 42,900 Accumulated depreciation $ 16,100 Store equipment Accounts payable 12.000 Common stock 4,000 Retained earnings 30,000 Dividends 2,250 Sales 114,500 Sales discounts 1.800 Sales returna and allowances 2,200 Coat of goods sold 39,000 Depreciation expense Store equipment Sales salaries expense 14,300 Office salaries expense 14,300 Insurance expense Rent expense Selling space 7,500 Rent expense office space 7.500 Store supplies expense Advertising expense 9.300 Total $177,600 $177,600 Additional Information: a. Store supplies still available at fiscal year-end amount to $2.800 b. Expired insurance, an administrative expense, is $1350 for the fiscal year c. Depreciation expense on store equipment, a selling expense, is $1.650 for the "scal year d. To estimate shrinkage, a physical count of ending merchandise Inventory is taken. It shows $10.500 of Inventory still available at fiscal year-end. Required: 1. Using the above information, prepare adjusting journal entries 2. Prepare a mutple-step income statement for the year ended January 31 3. Prepare a single-step income statement for the year ended January 3L

Answer 1

Below is the table showing desired results: -

1.

Journal entry Worksheet
Transaction	General Journal	Debit	Credit
a.	Store Supplies Expense(5500-2800)	2,700
	Store Supplies		2,700
(To record the supplies Expense)
b.	Insurance Expense	1,350
	Prepaid Expense		1,350
(To record the insurance Expense)
c.	Depreciation expense - Store Equip.	1,650
	Accumulated Depreciation - Store Equip.		1,650
(To record the depreiation Expense)
d.	Cost of Goods Sold(12500-10500)	2,000
	Merchandise Inventory		2,000
(To record the shrinkage of inventory)

Req. 2

Nelson Company
Income Statement
For the Year Ended Jan 31
Sales Revenue
Sales	114,500
Less: Sales Return & Allowances	2,200
Less: Sales Discounts	1,800
Net Sales		110,500
Cost of Goods Sold		40,000
Gross Margin		70,500
Selling Expenses
Depreciation Expense - Store Equipment	1,650
Sales Salaries Expense	14,300
Rent Expense - Selling Space	7,500
Store Supplies Expense	2,700
Advertising Expense	9,300
Total selling expense		35,450
Administrative Expense
Insurance Expense	1,350
Office Salaries Expense	14,300
Rent Expense - Office Space	7,500
Total Administrative Expense		23,150
Net Operating Income		11,900

Req. 3

Nelson Company
Income Statement
For the Year Ended Jan 31
Net Sales		110,500
Expenses
Cost of Goods Sold	40,000
Total selling expense	35,450
Total Administrative Expense	23,150
Total expense		98,600
Net Operating Income		11,900

Req. 4

Cash	17,050
Inventory	10,500
Supplies	2,800
Prepaid Insurance	1,150
Accounts payable	13,000
Current Assets	31,500
Current Liabilities	13,000
Quick assets(cash)	17,050
Gross Margin	70,500
Sales	110,500
Current Ratio	Current Assets/Current Liabilities
Acid Test Ratio	Quick assets/Current Liabilities
Gross Margin Ratio	Gross Margin/Sales
Current Ratio	2.42
Acid Test Ratio	1.31
Gross Margin Ratio	0.64