the following unadjusted trial balance is pfinancial year end for rex company PS

Question

the following unadjusted trial balance is pfinancial year end for rex company PS-3A Preparing adjusting entries and income statements and compating gross margin, acid-test and current ratios The following unadjusted trial balance is prepared at financial year end for Rex Company REX COMPANY Unadjusted Trial Balance January 31, 2015 Debit Credit $ 2,200 1,500 4,800 2,300 41,900 Prepaid inaurance -Store 15,000 9,000 32,000 Accounts payeble T, Rex, Capital 0 T Rex. ithdrawals 2,000 1 Sdes 2 Sales dscounts 13 Salos returns and alowancos 14 Cost of goods sold is Depreciation expensc-Store equipment 104,000 1,000 2,000 37 400 16 Salarles expanse 17 Insurance expense 18 Ront oxpenoo 19 Store supplies experiso 20 Advertising expense 31,000 14,000 9,900 $160,000 21 Totals $160,000 Rent expense and salaries expense are equally divided between selling activities and the gereral and administrative activities. Rex Company uses a perpetual inventory system Required 1. Pepatusies emsryho eleteahf a. Shore suppies still vailable at financial year ead amount to $1.650 b. Expired insurance, an administrative expense, for the firancial year is $1.500 c. Depreciasion expense en store equipeneut, a selling expense. is 51,400 for the finincial year d. To estimate shrinkage, a pbysical ount of ending merchandise inventory is takrn. It shows SIL100 of inventory 15 stillavailable at financial year-ead - 2. Prepare an income statemepifor financial year 2015. 3. Compute the current ratio, acid-test ratio, and gross margin ratio as at January 31, 2015.

Explanation / Answer

Since, multiple questions have been posted, I have answered all the parts of the first question (P5-3A).

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Part 1)

The adjusting entries are provided as below:

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Part 2)

The income statement for the financial year 2015 is prepared as below:

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Part 3)

The ratios are calculated as follows:

Current Ratio = Total Current Assets/Total Current Liabilities

where Total Current Assets = 2,200 (Cash) + 11,100 (Merchandise Inventory) + 1,650 (Store Supplies) + 800 (Prepaid Insurance) = $15,750

and Total Current Liabilities = Accounts Payable = $9,000

Using these values in the above formula for Current Ratio, we get,

Current Ratio = 15,750/9,000 = 1.75

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Acid-Test Ratio = (Total Current Assets - Merchandise Inventory - Prepaid Insurance - Store Supplies)/Total Current Liabilities = (15,750 - 11,100 - 800 - 1,650)/9,000 = .24

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Gross Margin Ratio = Gross Profit/Net Sales*100 = 63,200/101,000*100 = .63 or 62.57%

Event Journal Entries Debit Credit a) Store Supplies Expense (4,800 - 1,650) $3,150 Store Supplies $3,150 (To record store supplies expense) b) Insurance Expense $1,500 Prepaid Insurance $1,500 (To record expired insurance) c) Depreciation Expense - Store Equipment $1,400 Accumulated Depreciation - Store Equipment $1,400 (To record depreciation expense on store equipment) d) Cost of Goods Sold (11,500 - 11,100) $400 Merchandise Inventory $400 (To record inventory shrinkage adjustment)

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