Nelson Company
The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company.
NELSON COMPANY Unadjusted Trial Balance January 31, 2017 | ||||
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 | |||
J. Nelson, Capital |
32,000 | |||
J. Nelson, Withdrawals |
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 | |||
Salaries expense |
35,000 | |||
Insurance expense |
0 | |||
Rent expense |
15,000 | |||
Store supplies expense |
0 | |||
Advertising expense |
9,800 | |||
Totals |
$ |
169,200 |
$ |
169,200 |
Rent expense and salaries expense are equally divided between selling activities and general and administrative activities. Nelson Company uses a perpetual inventory system.
Additional Information:
- Store supplies still available at fiscal year-end amount to $1,750.
- Expired insurance, an administrative expense, for the fiscal year is $1,400.
- Depreciation expense on store equipment, a selling expense, is $1,525 for the fiscal year.
- 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.
Required:
1. Using the above information prepare adjusting journal entries:
2. Prepare a multiple-step income statement for fiscal year 2017.
3. Prepare a single-step income statement for fiscal year 2017.
- Compute the current ratio, acid-test ratio, and gross margin ratio as of January 31, 2017. (Round your answers to 2 decimal places.)
Current ratio = Current assets / current liabilities
Current assets Current liabilities
Cash $1000 Accounts payable $10000
Merchandise inventory 10900 Total $10000
Store supplies 1750
Prepaid insurance 1000 Current ratio: 14650/10000 à 1.465 à 1.47
Total $14650
Acid-test ratio aka quick ratio = Current assets – stocks/current liabilities
Cash $1000 Quick ratio: 1000/10000 = 0.10
Current liabilities 10000
Gross margin ratio = (Gross profit / Net Sales) x 100
Net sales $107750 Gross margin ratio: 67750/107750 = 0.63
COGS (40000)
Gross profit $67750
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