Problem 5-5A Preparing adjusting entries and income statements; and 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 trial balance is prepared at fiscal year-end for Nelson Company.

NELSON COMPANY Unadjusted Trial Balance January 31, 2015
	Debit		Credit
Cash	$	17,500
Merchandise inventory		13,500
Store supplies		5,800
Prepaid insurance		2,600
Store equipment		43,000
Accumulated depreciationStore equipment			$	16,150
Accounts payable				15,000
J. Nelson, Capital				36,000
J. Nelson, Withdrawals		2,250
Sales				114,750
Sales discounts		2,000
Sales returns and allowances		2,250
Cost of goods sold		38,000
Depreciation expenseStore equipment		0
Salaries expense		28,400
Insurance expense		0
Rent expense		17,000
Store supplies expense		0
Advertising expense		9,600
Totals	$	181,900	$	181,900

Rent expense and salaries expense are equally divided between selling activities and the 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 $1,800.
c.	Depreciation expense on store equipment, a selling expense, is $1,650 for the fiscal year.
d.	To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $11,000 of inventory is still available at fiscal year-end.

References

Section BreakProblem 5-5A Preparing adjusting entries and income statements; and computing gross margin, acid-test, and current ratios LO A1, A2, P3, P4

Problem 5-5A Part 1

Required:
1.	Using the above information prepare adjusting journal entries:

References

WorksheetLearning Objective: 05-A1 Compute the acid-test ratio and explain its use to assess liquidity.Learning Objective: 05-P4 Define and prepare multiple-step and single-step income statements.

Problem 5-5A Part 1Learning Objective: 05-A2 Compute the gross margin ratio and explain its use to assess profitability.

Difficulty: 3 HardLearning Objective: 05-P3 Prepare adjustments and close accounts for a merchandising company.

Problem 5-5A Part 2

2.	Prepare a multiple-step income statement for fiscal year 2015.

Problem 5-5A Part 3

3.	Prepare a single-step income statement for fiscal year 2015.

Problem 5-5A Part 4

4.	Compute the current ratio, acid-test ratio, and gross margin ratio as of January 31, 2015. (Round your answers to 2 decimal places.)