Required information

Problem 5-5A Preparing adjusting entries and income statements; 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 uses a perpetual inventory system. It categorizes the following accounts as selling expenses: depreciation expensestore equipment, sales salaries expense, rent expenseselling space, store supplies expense, advertising expense. It categorizes the remaining expenses as general and administrative.

NELSON COMPANY Unadjusted Trial Balance January 31
	Debit			Credit
Cash	$	1,400
Merchandise inventory		13,000
Store supplies		5,600
Prepaid insurance		2,200
Store equipment		42,500
Accumulated depreciationStore equipment				$	19,050
Accounts payable					14,000
J. Nelson, Capital					17,000
J. Nelson, Withdrawals		2,200
Sales					114,900
Sales discounts		1,850
Sales returns and allowances		2,200
Cost of goods sold		38,000
Depreciation expenseStore equipment		0
Sales salaries expense		14,850
Office salaries expense		14,850
Insurance expense		0
Rent expenseSelling space		8,500
Rent expenseOffice space		8,500
Store supplies expense		0
Advertising expense		9,300
Totals	$	164,950		$	164,950

Additional Information:

1. Store supplies still available at fiscal year-end amount to $2,350.
2. Expired insurance, an administrative expense, for the fiscal year is $1,550.
3. Depreciation expense on store equipment, a selling expense, is $1,625 for the fiscal year.
4. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,400 of inventory is still available at fiscal year-end.

Problem 5-5A Part 1, 2 and 3

Required:

1. Using the above information prepare adjusting journal entries. 2. Prepare a multiple-step income statement for the year ended January 31. 3. Prepare a single-step income statement for the year ended January 31.