Problem $4-5$A $($Algo$)$ Preparing adjusting entries and income statements; computing gross margin, acid$-$test, and current ratios LO A$1,$ P$3,$ P$4$

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The following unadjusted trial balance is prepared at fiscal year$-$end for Nelson Company. Nelson Company uses a perpetual inventory system. It categorizes the following accounts as selling expenses: Depreciation Expense$$Store Equipment, Sales Salaries Expense, Rent Expense$$Selling Space, Store Supplies Expense, and Advertising Expense. It categorizes the remaining expenses as general and administrative.

NELSON COMPANY

Unadjusted Trial Balance

January $31$

Debit Credit

Cash $ $22,300$

Merchandise inventory $13,000$

Store supplies $5,800$

Prepaid insurance $2,700$

Store equipment $42,700$

Accumulated depreciation$$Store equipment $ $17,850$

Accounts payable $13,000$

Common stock $4,000$

Retained earnings $35,000$

Dividends $2,000$

Sales $115,700$

Sales discounts $1,900$

Sales returns and allowances $2,050$

Cost of goods sold $38,000$

Depreciation expense$$Store equipment $0$

Sales salaries expense $14,000$

Office salaries expense $14,000$

Insurance expense $0$

Rent expense$$Selling space $9,000$

Rent expense$$Office space $9,000$

Store supplies expense $0$

Advertising expense $9,100$

Totals $ $185,550$ $ $185,550$

Additional Information:

a$.$ Store supplies still available at fiscal year$-$end amount to $$2,700.$

b$.$ Expired insurance, an administrative expense, is $$1,700$ for the fiscal year

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

d$.$ Prepare a multiple$-$step income statement for the year ended January $31$ that begins with gross sales and includes separate

categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $$10,100$ of inventory is still available at fiscal year$-$end.

Using the above information, prepare adjusting journal entries.

No Transaction General Journal Debit Credit

$1$ a$.$ Store supplies expenseselected answer correct $3,100$selected answer correct not attempted

Store suppliesselected answer correct not attempted $3,100$selected answer correct

$2$ b$.$ Insurance expenseselected answer correct $1,700$selected answer correct not attempted

Prepaid insuranceselected answer correct not attempted $1,700$selected answer correct

$3$ c$.$ Depreciation expense$$Store equipmentselected answer correct $1,525$selected answer correct not attempted

Accumulated depreciation$$Store equipmentselected answer correct not attempted $1,525$selected answer correct

$4$ d$.$ Cost of goods soldselected answer correct $2,900$selected answer correct not attempted

Merchandise inventoryselected answer correct not attempted $2,900$selected answer correct

NOW, WHAT IS THE COST OF GOODS SOLD??

LAST STEP: $4.$ Compute the current ratio, acid$-$test ratio, and gross margin ratio as of January $31.$

Note: Round your answers to $2$ decimal places.

WHAT IS THE

$1.$ Current ratio

$2.$ Acid$-$test ratio

$3.$ Gross margin ratio