Answer:
Nelson Company
a. Adjusting Journal Entries:
Debit Supplies Expense $2,700
Credit Supplies $2,700
To record supplies expense.
Debit Insurance Expense $1,650
Credit Prepaid Insurance $1,650
To record insurance expense.
Debit Depreciation Expense $1,625
Credit Accumulated Depreciation $1,625
To record depreciation expense.
b. Multi-step Income Statement for the year ended January 31, 2017:
Sales $114,550
Sales returns and allowances 2,000
Net Sales 112,550
Cost of goods sold 38,000
Inventory Shrinkage 3,700 41,700
Gross profit $70,850
Depreciation expense- Store 1,625
Sales discounts 1,850
Salaries expense 13,600
Rent expense 6,000
Store supplies expense 2,700
Advertising expense 9,700
Total selling expenses $35,475
Administrative Expenses:
Salaries expense 13,600
Insurance expense 1,650
Rent expense 6,000
Total administrative expenses $21,250 $56,725
Net Income $14,125
c. Single-step Income Statement for the year ended January 31, 2017:
Sales $114,550
Sales discounts 1,850
Sales returns and allowances 2,000
Cost of goods sold 38,000
Inventory Shrinkage 3,700
Depreciation expense- Store 1,625
Salaries expense 27,200
Rent expense 12,000
Store supplies expense 2,700
Advertising expense 9,700
Insurance expense 1,650 $100,425
Net Income $14,125
d. Current Ratio = Current Assets/Current Liabilities
= $22,700/$16,000
= 1.42
Acid-test ratio = (Current assets - Inventory)/Current Liabilities
= ($22,700 -10,800)/$16,000
= 0.74
Gross margin ratio = Gross profit/Net Sales = $70,850/112,550 * 100
= 63%
Explanation:
a) Data and Calculations:
NELSON COMPANY Unadjusted Trial Balance January 31, 2017
Debit Credit
Cash $8,150
Merchandise inventory 14,500
Store supplies 5,500
Prepaid insurance 2,600
Store equipment 42,800
Accumulated depreciation -Store equipment $17,850
Accounts payable 16,000
J. Nelson, Capital 18,000
J. Nelson, Withdrawals 2,100
Sales 114,550
Sales discounts 1,850
Sales returns and allowances 2,000
Cost of goods sold 38,000
Depreciation expense- Store equipment 0
Salaries expense 27,200
Insurance expense 0
Rent expense 12,000
Store supplies expense 2,700
Advertising expense 9,700
Totals $166,400 $166,400
Adjustments:
Supplies Expense $2,700 Supplies $2,700
Insurance Expense $1,650 Prepaid Insurance $1,650
Depreciation Expense $1,625 Accumulated Depreciation $1,625
NELSON COMPANY
Adjusted Trial Balance January 31, 2017
Debit Credit
Cash $8,150
Merchandise inventory 10,800
Store supplies 2,800
Prepaid insurance 950
Store equipment 42,800
Accumulated depreciation -Store equipment $19,475
Accounts payable 16,000
J. Nelson, Capital 18,000
J. Nelson, Withdrawals 2,100
Sales 114,550
Sales discounts 1,850
Sales returns and allowances 2,000
Cost of goods sold 38,000
Inventory Shrinkage 3,700
Depreciation expense- Store 1,625
Salaries expense 27,200
Insurance expense 1,650
Rent expense 12,000
Store supplies expense 2,700
Advertising expense 9,700
Totals $168,025 $168,025
Current Assets:
Cash $8,150
Merchandise inventory 10,800
Store supplies 2,800
Prepaid insurance 950
Total current assets = $22,700
Current Liabilities:
Accounts payable 16,000
