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Item 6

Item 6 Part 2 of 2 3.35 points

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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.

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

Answer 1

F G H I B C D E NELSON COMPANY January 31 | Unadjusted T/B Adjustments Account Titles Debit ($) Credit ($) Debit ($) Credit ($) 5 Cash $ 19,200 6 Merchandise Inventory $ 14,000 $ 3,500 7 Store Supplies $ 5,900 $ 4,350 8 Prepaid Insurance $ 2,700 $ 1,700 9 Store Equipment $ 42,500 10 Accumulated Depreciation - Store Equipment $ 16,200 $ 1.650 11 Accounts Payable $ 14,000 12 Common Stock $ 5,000 13 Retained Earnings $ 34,000 14 Dividends $ 2,050 15 Sales $ 115,750 16 Sales Discounts $ 1,850 17 Sales Returns and Allowances $ 2,150 18 Cost of Goods sold $ 38,000 $ 3,500 19 Depreciation expense - Store Equipement $ . $ 1,650 20 Sales Salaries expense $ 15,800 21 Office Salaries expense $ 15,800 22 Insurance Expense $ . $ 1,700 23 Rent Expense - Selling space $ 8,000 24 Rent Expense - Office Space $ 8,000 25 Store Supplies expense $ - $ 4,350 26 Advertising Expense $ 9,000 Post Closing T/B Debit ($) Credit ($) $ 19,200 $ 10,500 $ 1,550 $ 1,000 $ 42,500 $ 17,850 $ 14,000 $ 5,000 $ 37,900 Adjusted T/B Debit ($) Credit ($) $ 19,200 $ 10,500 $ 1,550 $ 1,000 $ 42,500 $ 17,850 $ 14,000 $ 5,000 $ 34,000 $ 2,050 $ 115,750 $ 1,850 $ 2,150 $ 41,500 $ 1,650 $ 15,800 $ 15,800 $ 1,700 $ 8,000 $ 8,000 $ 4,350 $ 9,000 27 28 Total $184,950 $ 184,950 $ 11,200 $ 11,200 $186,600 $ 186,600 $ 74,750 $ 74,750 29

M N o $113,600 $ 41,500 $ 72,100 Current Assets Cash $ Merchandise Inventory | $ Store Supplies $ Prepaid Insurance $ Total Current Assets $ 19,200 10,500 1,550 1,000 32,250 L 1 NELSON COMPANY 2 For the month ended January 31 3 Sales $115,750 4 Less: Sales Returns and Allowances $ 2,150 5 Net Sales 6 Less: Cost of Goods Sold 7 Gross Margin 8 Less: Expenses 9 Sales Discounts $ 1,850 10 Depreciation expense - Store Equipement $ 1,650 11 Sales Salaries expense $ 15,800 12 Office Salaries expense $ 15,800 13 Insurance Expense $ 1,700 14 Rent Expense - Selling space $ 8,000 15 Rent Expense - Office Space $ 8,000 16 Store Supplies expense $ 4.350 17 Advertising Expense $ 9,000 18 Total Expenses 19 Net Income 20 Current Liabilities Accounts Payable $ Total Current Liabilities $ 14,000 14,000 Current Ratio =Current Assets / Current Liabilities =$32,250 / $14,000 2.30 $ 66,150 $ 5,950 Quick Ratio | =(Current Assets - Inventory / Current Liabilities =($32,250 - $10,500) / $14,000 1.55 21 23 24 Gross Margin Ratio =Gross Margin / Net Sales =$72,100 / $113,600 63.47% 26

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