Answer:
1)
a. Store supplies still available at fiscal year-end amount to $1,750.
Dr Supplies expense 4,050
Cr Supplies 4,050
b. Expired insurance, an administrative expense, for the fiscal year is $1,400.
Dr Insurance expense 1,400
Cr Prepaid insurance 1,400
c. Depreciation expense on store equipment, a selling expense is $1,525 for the fiscal year.
Dr Depreciation expense on store equipment 1,525
Cr Accumulated depreciation: store equipment 1,525
d. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,900 of inventory is still available at fiscal year-end.
Dr Cost of goods sold 1,600
Cr merchandise inventory 1,600
2) Income statement
Sales $111,950
- Sales discounts $2,000
- Sales returns and allowances <u>$2,200</u>
Net sales $107,750
- Cost of goods sold <u>$40,000</u>
Gross profit $67,750
- Operating expenses:
- Depreciation expense $1,525
- Salaries expense $35,000
- Insurance expense $1,400
- Rent expense $15,000
- Store supplies expense $4,050
- Advertising expense $9,800 <u>$66,775</u>
Operating income $975
3) Statement of owner's equity (the company doesn't have retained earnings)
J. Nelson, Capital, at January 1, 202x $32,000
Net income 202x <u>$975</u>
Subtotal $32,975
- Withdrawals <u>$2,200</u>
J. Nelson, Capital, at December 31, 202x $30,775
Balance sheet
Assets:
Cash $1,000
Merchandise Inventory $10,900
Store supplies $1,750
Prepaid Insurance $1,000
Store equipment, net $26,125
Total assets $40,775
Liabilities + owner's equity:
Accounts payable $10,000
J. Nelson, Capital $30,775
Total liabilities + owner's equity $40,775
4) current ratio = $14,650 / $10,000 = 1.465
acid test ratio = $3,750 / $10,000 = 0.375
gross margin ratio = $67,750 / $107,750 = 0.629
