The following unadjusted trial balance is prepared at fiscal year-end for Nelson

Question

The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company.

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:

a. Store supplies still available at fiscal year-end amount to $1,850.

b. Expired insurance, an administrative expense, for the fiscal year is $1,750.

c. Depreciation expense on store equipment, a selling expense, is $1,525 for the fiscal year.

d. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,600 of inventory is still available at fiscal year-end.

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.

NELSON COMPANY
Unadjusted Trial Balance
January 31, 2017 Debit Credit Cash $ 6,150 Merchandise inventory 15,000 Store supplies 5,700 Prepaid insurance 2,700 Store equipment 42,600 Accumulated depreciation—Store equipment $ 17,550 Accounts payable 14,000 J. Nelson, Capital 18,000 J. Nelson, Withdrawals 2,100 Sales 115,250 Sales discounts 1,850 Sales returns and allowances 2,100 Cost of goods sold 38,000 Depreciation expense—Store equipment 0 Salaries expense 25,800 Insurance expense 0 Rent expense 13,000 Store supplies expense 0 Advertising expense 9,800 Totals $ 164,800 $ 164,800

Explanation / Answer

Date General Journal Debit Credit 31-Jan Store supplies expense 3850 Store supplies 3850 (5700-1850) 31-Jan Insurance expense 1750 Prepaid insurance 1750 31-Jan Depreciation expense—Store equipment 1525 Accumulated depreciation—Store equipment 1525 31-Jan Cost of goods sold 4400 Merchandise inventory 4400 15000-10600 NELSON COMPANY Income Statement For Year Ended January 31 2017 Sales 115250 Less: Sales discounts 1850 Less:Sales returns and allowances 2100 Net Sales 111300 Cost of goods sold (38000+4400) 42400 Gross Profit 68900 Expense Selling expenses Depreciation expense—Store equipment 1525 Sales salaries expense (25800/2) 12900 Rent expense—Selling space (13000/2) 6500 Store supplies expense 3850 Advertising expense 9800 Total selling expenses 34575 General and administrative expenses Insurance expense 1750 Office salaries expense (25800/2) 12900 Rent expense— Office space (13000/2) 6500 Total general and administrative expenses 21150 Total expenses 55725 Net Income 13175 single-step income statement for fiscal year NELSON COMPANY Income Statement For Year Ended January 31 2017 Net Sales 111300 Expense Cost of goods sold 42400 Selling Expense 34575 General and administrative expense 21150 Total Expenses 98125 Net Income 13175

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