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 $ 19,100 Cash Merchandise inventory 14,500 Store supplies 5,800 Prepaid insurance Store equipment Accumulated depreciation-Store equipment Accounts payable 2,500 42,500 $ 16,550 13,000 Common stock 5,000 Retained earnings 31,000 Dividends 2,150 Sales 115,550 Sales discounts 1,950 Sales returns and allowances 2,100 38,000 Cost of goods sold Depreciation expense-Store equipment Sales salaries expense Office salaries expense 13,800 13,800 Insurance expense Rent expense-Selling space Rent expense-Office space Store supplies expense Advertising expense 7,500 7,500 9,900 $181,100 $181,100 Totals Additional Information: a. Store supplies still available at fiscal year-end amount to $2,550. b. Expired insurance, an administrative expense, is $1,400 for the fiscal year. c. Depreciation expense on store equipment, a selling expense, is $1,625 for the fiscal year. d. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,400 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

Requirement 1:

	Accuont title and explanations	Debit	Credit
a	Supplies expense (5,800-2,550)	$3,250
	Supplies		$3,250
	[To record supplies expense]
b	Insurance expense	$1,400
	Prepaid insurance		$1,400
	[To record insurance expense]
c	Depreciatiation expense-store equipment	$1,625
	Accumulated depreciation - Store equipment		$1,625
	[To record depreciation expense]
d	Cost of goods sold (14,500-10,400)	$4,100
	Merchandise inventory		$4,100
	[To record inventory shrinkage]

Requirement 2:

NELSON COMPANY
Income Statement (Multi-step)
January 31
Sales	$115,550
Less: Sales discounts	($1,950)
Sales returns and allowances	($2,100)
Net sales		$111,500
Cost of goods sold		($42,100)
Gross profit		$69,400
Operating Expenses:
Selling Expenses:
Depreciation expense - Store equipment	$1,625
Salaries expense	$13,800
Rent expense-Selling space	$7,500
Advertising expense	$9,900
Store supplies expense	$3,250
General and administration expense:
Salaries expense	$13,800
Insurance expense	$1,400
Rent expense-office space	$7,500
Total Operating expenses		$58,775
Net income		$10,625

Requirement 3:

NELSON COMPANY
Income Statement (single-step)
January 31
Revenues:
Net sales		$111,500
Expenses:
Cost of goods sold	$42,100
Depreciation expense - Store equipment	$1,625
Salaries expense	$27,600
Rent expense	$15,000
Advertising expense	$9,900
Store supplies expense	$3,250
Insurance expense	$1,400
Total Expenses		$100,875
Net income		$10,625