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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:

  1. Store supplies still available at fiscal year-end amount to $1,750.
  2. Expired insurance, an administrative expense, for the fiscal year is $1,400.
  3. Depreciation expense on store equipment, a selling expense, is $1,525 for the fiscal year.
  4. 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.

  1. 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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