Answer:
NELSON COMPANY
1. Adjusting Journal Entries:
a. Debit Supplies Expense $4,050
Credit Supplies $4,050
To record supplies expense for the year.
b. Debit Insurance Expense $1,400
Credit Prepaid Insurance $1,400
To record Insurance Expense for the year.
c. Debit Depreciation Expense $1,525
Credit Accumulated Depreciation - Store Equipment $1,525
To record depreciation expense for the year.
d. Debit Inventory Shrinkage $1,600
Credit Merchandise Inventory $1,600
To record inventory shrinkage.
2. Multi-step Income Statement for the year ended January 31
Sales $111,950
Sales returns and allowances 2,200
Net Sales Revenue $109,750
Cost of goods sold 38,400
Gross margin $71,350
Selling Expenses:
Sales discounts 2,000
Sales salaries expense 17,500
Rent expense—Selling space 7,500
Depreciation expense
—Store equipment 1,525
Store supplies expense 4,050
Advertising expense 9,800
Inventory Shrinkage 1,600
Total selling expenses $43,975
Administrative Expenses:
Office salaries expense 17,500
Insurance expense 1,400
Rent expense—Office space 7,500
Total administrative exp. $26,400
Total Expense ($70,375)
Net Income (Loss) $975
3. Single-step Income Statement for the year ended January 31
Sales $111,950
Sales returns and allowances 2,200
Net Sales Revenue $109,750
Sales discounts 2,000
Cost of goods sold 38,400
Depreciation expense
—Store equipment 1,525
Sales salaries expense 17,500
Office salaries expense 17,500
Insurance expense 1,400
Rent expense—Selling space 7,500
Rent expense—Office space 7,500
Store supplies expense 4,050
Advertising expense 9,800
Inventory Shrinkage 1,600 ($108,775)
Net Income (Loss) $975
4. Current Ratio = Current Assets/Current Liabilities
= $15,625/$10,000
= 1.56:1
Acid-Test Ratio = Cash/Current Liabilities
= $1,000/$10,000 =
= 0.1:1
Gross margin ratio = Gross margin/Net Sales * 100
= $71,350/$109,750 * 100
= 65.01%
Step-by-step explanation:
NELSON COMPANY
Unadjusted Trial Balance
January 31
Debit Credit
Cash $ 1,000
Merchandise inventory 12,500
Store supplies 5,800
Prepaid insurance 2,400
Store equipment 42,900
Accumulated depreciation—Store equipment $ 15,250
Accounts payable 10,000
Common stock 5,000
Retained earnings 27,000
Dividends 2,200
Sales 111,950
Sales discounts 2,000
Sales returns and allowances 2,200
Cost of goods sold 38,400
Depreciation expense—Store equipment 0
Sales salaries expense 17,500
Office salaries expense 17,500
Insurance expense 0
Rent expense—Selling space 7,500
Rent expense—Office space 7,500
Store supplies expense 0
Advertising expense 9,800
Totals $ 169,200 $ 169,200
a. Stores Supplies, ending = $1,750
Supplies expense = $4,050 ($5,800 - $1,750)
b. Insurance Expense = $1,400
Prepaid insurance - $1,000 (2,400 - 1,400)
c. Depreciation expense = $1,525
Accumulated Depreciation-Store Equipment = $16,775 (15,250+1,525)
d. Merchandise Inventory, ending = $10,900
Shrinkage = $1,600 (12,500 - 10,900)
NELSON COMPANY
Unadjusted Trial Balance
January 31
Debit Credit
Cash $ 1,000
Merchandise inventory 10,900
Store supplies 1,750
Prepaid insurance 1,000
Store equipment 42,900
Accumulated depreciation—Store equipment $ 16,775
Accounts payable 10,000
Common stock 5,000
Retained earnings 27,000
Dividends 2,200
Sales 111,950
Sales discounts 2,000
Sales returns and allowances 2,200
Cost of goods sold 38,400
Depreciation expense
—Store equipment 1,525
Sales salaries expense 17,500
Office salaries expense 17,500
Insurance expense 1,400
Rent expense—Selling space 7,500
Rent expense—Office space 7,500
Store supplies expense 4,050
Advertising expense 9,800
Inventory Shrinkage 1,600
Totals $ 170,725 $ 170,725
Current Assets:
Cash $ 1,000
Merchandise inventory 10,900
Store supplies 1,750
Prepaid insurance 1,000
Total current assets $15,625
Current liabilities:
Accounts payable $10,000