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 Credit Debit $ 22,300 13,500 5,900 2,500 42,900 $ 16,100 17,000 4,000 28,000 2,050 115,900 Cash Merchandise inventory Store supplies Prepaid insurance Store equipment Accumulated depreciation-Store equipment 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 space Rent expense-office space Store supplies expense Advertising expense Totals 1,900 2,150 38,000 0 13,600 13,600 6,500 6,500 0 9,600 $181,000 $181,000

Answer 1

1)	Adjusting journal entries
sr	Particular	Debit ($)	Credit ($)
a)	Supplies expenses	3450
	To stores supplies (5900-2450)		3450
	(To record supplies expenses during
	the year )
b)	Insurance expenses	1550
	To prepaid insurance		1550
	(To record insurance expenses during
	the year )
c)	Depreciation expenses	1650
	To accumulated Depreciation		1650
	(To record depreciation expenses )
d)	Cost of goods sold	3100
	To merchandise inventory (13500-10400)		3100
	(To record cost of goods sold )

2)	Multiple step Income statement
	Particular	Amount($)	Amount ($)
	Sales	115900
	less :sales discount	1900
	less : sales return and allownaces	2150
	Net sales		111850
	Cost of goods sold (38000+3100)		41100
	Gross profit		70750
	less : expenses
	Selling expenses
	Advertising expenses	9600
	depreciation expenses	1650
	rent expenses (selling space )	6500
	sales salaries expenses	13600
	store supplies expenses	3450
	Total selling expenses	34800
	General and administrative expenses
	Insurance expenses	1550
	Office salaries expenses	13600
	Rent expenses ( office sapce )	6500
	Total general and administrative expenses	21650
	Total expenses		56450
	Net Income		14300
3)	Single step Income statement
	Particular	Amount($)	Amount ($)
	Net sales		111850
	Less : Expenses
	General And administrative expenses	21650
	Selling expenses	34800
	Cost of goods sold	41100
	Total expenses		97550
	Net Income		14300

4) Current Ratio = Current ASSETS / current liabilities

Current assets = 22300+10400+2450+950 = 36100

Current liabilities = 17000

Current Ration = 36100/17000 = 2.12

Acid test ration = ( current assets - inventory ) / Current liabilities

Acid test ratio = (36100 - 10400 ) / 17000 = 1.51

Gross Margin ratio = Gross profit / net sales

=70750/111850 = 0.63