Question

NELSON COMPANY Unadjusted Trial Balance January 31 Credit Debit $ 17,200 14,000 5,900 2,300 42,800 $ 17,150 12,000 4,000 31,000 2,100 115,600 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 01 14,650 14,650 0 7,500 7,500 0 9,100 $179,750 $179,750

Answer 1

Prepare adjusting entries as follows:

Date	General Journal	Debit	Credit
Jan. 31	Store supplies expense	$4,150
	Store supplies [$5900 - $1750]		$4,150
Jan. 31	Insurance Expense	$1,650
	Prepaid Insurance		$1,650
Jan. 31	Depreciation Expense-Store equipment	$1,675
	Accumulated depreciation-Store equipment		$1,675
Jan. 31	Cost of goods sold	$3,400
	Merchandise inventory		$3,400

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Adjusted Trial Balance
	Debit	Credit
Cash	$17,200
Merchandise inventory	$10,600
Store supplies	$1,750
Prepaid Insurance	$650
Store Equipment	$42,800
Accumulated depreciation-store equipment		$18,825
Accounts payable		$12,000
Common stock		$4,000
Retained Earnings		$31,000
Dividends	$2,100
Sales		$115,600
Sales discounts	$1,900
Sales returns and allowances	$2,150
Cost of goods sold	$41,400
Depreciation Expense-Store equipment	$1,675
Sales salaries expense	$14,650
Office salaries expense	$14,650
Insurance expense	$1,650
Rent expense-selling space	$7,500
Rent expense-office space	$7,500
Store supplies expense	$4,150
Advertising expense	$9,100
Totals	$181,425	$181,425

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Income Statement
Sales		$115,600
Less: Sales discounts	$1,900
Less: Sales return and allowances	$2,150	$4,050
Net Sales		$111,550
Cost of goods sold		($41,400)
Gross profit		$70,150
Expense
Advertising expense	$9,100
Depreciation Expense-Store equipment	$1,675
Rent expense-selling space	$7,500
Sales salaries expense	$14,650
Store supplies expense	$4,150
Total selling expense	$37,075
General and administrative expenses
Insurance expense	$1,650
Office salaries expense	$14,650
Rent expense-office space	$7,500
Total General and administrative expenses	$23,800
Total expenses		$60,875
Net Income		$9,275

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Current ratio = Current assets / Current liability

= $30200 / $12000

= 2.52 : 1

Current assets =

Cash

Merchandise inventory

Store supplies

Prepaid Insurance

Current liability = Accounts payable

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Acid-Test Ratio = [Cash + marketable securities + Accounts receivable] / Current liability

=[$17200 + $0+$0] / $12000

= 1.43 : 1

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Gross margin ratio = Gross profit / Net Sales

= $70150 / $111550

= 0.62

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Please feel free to ask any query regarding the solution.