Seved Problem 5-5A Preparing adjusting entries and income statements; computing

Question

Seved Problem 5-5A Preparing adjusting entries and income statements; computing gross margin, acid-test and current ratios LO A1, A2, P3, P4 The following information applies to the questions displayed below. The following unadjusted tial balance is prepared at fiscal year-end for Nelson Company. NELSON COMPANY Unadjusted Trial Balance January 31, 2017 Debit Credit Cash Merchandise inventory Store supplies Prepaid insurance Store equipment Accumulated depreciation-Store equipment Accounts payable J. Nelson, Capital J. Nelson, withdrawals Sales Sales discounts Sales returns and allowances Cost of goods sold $3,350 14,500 5,700 2,100 43,000 s 18,050 18,000 18,000 2,200 114, 750 2,050 2,200 38,000 Depreciation expense-store equipment Salaries expense 32, 000 Insurance expense Rent expense Store supplies expense 14,000 Next >

Explanation / Answer

Adjusting entries 1 store Supplies expense 3150 (5700-2550)              Stores supplies 3150 2 Insurance expense 1500              Prepaid insurance 1500 3 Depreciation expense -stores equipment 1675               Accumulated depreciation -stores equipment 1675 4 Cost of goods sold 3900 (14500-10600)              Merhcandise inventory 3900 2 Income statement multi step Sales 114750 Sales return and allowance -2200 Sales discount -2050 Net sales 110500 Less Cost of goods sold 41900 Gross margin 68600 Less Selling and admin expense Depreciation expense stores equipment 1675 Salaries expense 32000 Insurance expense 1500 Stores supplies expense 3150 Rent expense 14000 52325 Net operating income 16275 3 Income statement single step Net sales 110500 Less Expenses Cost of goods sold 41900 Depreciation expense stores equipment 1675 Salaries expense 32000 Insurance expense 1500 Stores supplies expense 3150 Rent expense 14000 Total expense 94225 Net operating income 16275 4 Current ratio = current assets / current liabilities Current assets 17100 (3350+10600+2550+600) Current liabilities 18000 Current ratio 0.95 Acid test assets = acid assets / current liabilities Acid assets = current asset - inventory -prepaid expense 5900 Current liabilities 18000 Acid test assets 0.33 Gross margin ratio = gross margin / net sales Gross margin 68600 Net sales 110500 Gross margin ratio 62.08%

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