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 $ 24,650 14,500 5,400 2,500 42,900 $ 19,300 16,000 3,000 34,000 2,250 114,500 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 2,050 2,250 38,000 15, 250 15,250 6,000 6,000 9,800 $186,800 $186,800 Additional Information: a. Store supplies still available at fiscal year-end amount to $2,550. b. Expired insurance, an administrative expense, is $1,700 for the fiscal year. c. Depreciation expense on store equipment, a selling expense, is $1,700 for the fiscal year. d. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,800 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:

No	Transaction	Account title and explanation	Debit	Credit
1	a	Store supplies expense [5400-2550]	$2,850
		Store supplies		$2,850
		[To record store supplies expense]
2	b	Insurance expense	$1,700
		Prepaid insurance		$1,700
		[To record insurance expense]
3	c	Depreciation expense-Store equipment	$1,700
		Accumulated depreciation-Store equipment		$1,700
		[To record depreciation expense]
4	d	Cost of goods sold [14500-10800]	$3,700
		Merchandise inventory		$3,700
		[To record inventory shrinkage]

Requirement 2:

NELSON COMPANY
Income Statement
For Year Ended January 31
Sales		$114,500
Sales discounts	$2,050
Sales returns and allowances	$2,250	$4,300
Net sales		$110,200
Cost of goods sold [38000+3700]		$41,700
Gross profit		$68,500
Expenses:
Selling expenses:
Depreciation expense-store equipment	$1,700
Sales salaries expense	$15,250
Rent expense-Selling space	$6,000
Advertising expense	$9,800
Total selling expenses		$32,750
General and administrative expenses:
Office salaries expense	$15,250
Insurance expense	$1,700
Rent expense-Office space	$6,000
Store supplies expense	$2,850
Total general and administrative expenses		$25,800
Total expenses		$58,550
Net income		$9,950

Requirement 3:

NELSON COMPANY
Income Statement
For Year Ended January 31
Net Sales		$110,200
Expenses:
Cost of goods sold	$41,700
Selling expenses	$32,750
General and administrative expenses	$25,800
Total expenses		$100,250
Net income		$9,950