Chapter 5, Problem 3GLP

To determine

Adjusting Entries:

The journal entries framed to realize the revenues and expense for the specified accounting period are called adjusting entries.

Income Statement:

The statement which shows the revenues earned and expenses incurred during a particular year is called Income statement.

Statement of Owner’s Equity:

The statement which shows changes in the owners’ equity due to net income or loss and owners’ withdrawal during the accounting period is called statement of owner’s equity.

Balance Sheet:

A financial statement which shows the financial position of a company during specified accounting period is called a balance sheet.

Closing Entries:

The journal entries prepare to close all the temporary accounts at the end of the accounting period is called closing entries.

To determine:

Prepare financial statements and operating cycle of the merchandising company.

Answer to Problem 3GLP

Solution:

NELSON COMPANY Income Statement January 31, 2017
Revenue:
Sales		$111,950
Expenses:
Sales Discounts	$2,000
Sales Returns and Allowances	$2,200
Cost of Goods Sold	$40,000
Depreciation Expense – Store Equipment	$1,525
Salaries Expense	$35,000
Insurance Expense	$1,400
Rent Expense	$15,000
Store Supplies Expense	$4,050
Advertising Expense	$9,800
Total Expense		$110,975
Net Income		$975

NELSON COMPANY Statement of Owner’s Equity January 31, 2017
J. Nelson, Capital, Beginning Balance	$32,000
Net income for the period	$975
Subtotal	$32,975
J. Nelson, withdrawals	($2,200)
J. Nelson, Capital, January 31, 2017.	$30,775

NELSON COMPANY Balance Sheet January 31, 2017
Assets
Current Asset:
Cash	$1,000
Merchandise Inventory	$10,900
Store Supplies	$1,750
Prepaid Insurance	$1,000
Total Current Assets		$14,650
Plant, Property and Equipment:
Store Equipment	42,900
Accumulated Depreciation - Store Equipment	$16,775	$26,125
Total Assets		$40,775
Liabilities
Current Liabilities:
Accounts Payable		$10,000
Owner’s Equity
P. Hawkeye, Capital		$30,775
Total Liabilities and Owner’s Equity		$40,775

Closing Entries

Date	Accounts	Debit	Credit
Clos. 1	Sales	$111,950
	Income Summary		$111,950
Clos. 2	Income Summary	$110,975
	Sales Discounts		$2,000
	Sales Returns and Allowances		$2,200
	Cost of Goods Sold		$40,000
	Depreciation Expense – Store Equipment		$1,525
	Salaries Expense		$35,000
	Insurance Expense		$1,400
	Rent Expense		$15,000
	Store Supplies Expense		$4,050
	Advertising Expense		$9,800
Clos. 3	Income Summary	$975
	J. Nelson, Capital		$975
	J. Nelson, Capital	$2,200
	J. Nelson, Withdrawals		$2,200

NELSON COMPANY Post-Closing Trial Balance January 31, 2017
Account Title	Debit	Credit
Cash	$1,000
Merchandise Inventory	$10,900
Store Supplies	$1,750
Prepaid Insurance	$1,000
Store Equipment	$42,900
Accumulated Depreciation – Store Equipment		$16,775
Accounts Payable		$10,000
J. Nelson, Capital		$30,775
Totals	$57,550	$57,550

Explanation of Solution

Explanation:

Adjusting entries

Date	Accounts	Debit	Credit
Jan. 31 a.	Store Supplies Expense	$4,050
	Store Supplies		$4,050
Jan. 31 b.	Insurance Expense	$1,400
	Prepaid Insurance		$1,400
Jan. 31 c.	Depreciation Expense – Store Equipment	$1,525
	Accumulated Depreciation - Store Equipment		$1,525
Jan. 31 d.	Cost of Goods Sold	$1,600
	Merchandise Inventory		$1,600

Store Supplies Expense
Unadj. Bal. $0 Jan. 31 a. $4,050
Bal. $4,050

Store Supplies
Unadj. Bal. $5,800	Jan. 31 a. $4,050
Bal. $1,750

Insurance Expense
Unadj. Bal. $0 Jan. 31 b. $1,400
Bal. $1,400

Prepaid Insurance
Unadj. Bal. $2,400	Jan. 31 b. $1,400
Bal. $1,000

Depreciation Expense – Store Equipment
Unadj. Bal. $0 Jan. 31 c. $1,525
Bal. $1,525

Accumulated Depreciation - Store Equipment
	Unadj. Bal. $15,250 Jan. 31 c. $1,525
	Bal. $16,775

Cost of Goods Sold
Unadj. Bal. $38,400 Jan. 31 d. $1,600
Bal. $40,000

Merchandise Inventory
Unadj. Bal. $12,500	Jan. 31 d. $1,600
Bal. $10,900

NELSON COMPANY Adjusted Trial Balance January 31, 2017
Account Title	Debit	Credit
Cash	$1,000
Merchandise Inventory	$10,900
Store Supplies	$1,750
Prepaid Insurance	$1,000
Store Equipment	$42,900
Accumulated Depreciation – Store Equipment		$16,775
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	$40,000
Depreciation Expense – Store Equipment	$1,525
Salaries Expense	$35,000
Insurance Expense	$1,400
Rent Expense	$15,000
Store Supplies Expense	$4,050
Advertising Expense	$9,800
Totals	$170,725	$170,725

Posting closing entries

J. Nelson, Capital
Clos.4 $2,200	Jan. 31 $32,000 Clos.3 $975
Bal. $30,775

J. Nelson, Withdrawals
Jan. 31 $2,200	Clos.4 $2,200
Bal. 0

Income Summary
Clos.2 $110,975 Clos.3 $975	Jan. 31 $0 Clos. 1 $111,950 Bal. $975
Bal. 0

Sales
Clos. 1 $111,950	Jan. 31 $111,950
Bal. 0

Sales Discounts
Jan. 31 $2,000	Clos. 2 $2,000
Bal. 0

Sales Returns and Allowances
Jan. 31 $2,200	Clos. 2 $2,200
Bal. 0

Cost of Goods Sold
Jan. 31 $40,000	Clos. 2 $40,000
Bal. 0

Depreciation Expense – Store Equipment
Jan. 31 $1,525	Clos. 2 $1,525
Bal. 0

Salaries Expense
Jan. 31 $35,000	Clos. 2 $35,000
Bal. 0

Insurance Expense
Jan. 31 $1,400	Clos. 2 $1,400
Bal. 0

Rent Expense
Jan. 31 $15,000	Clos. 2 $15,000
Bal. 0

Store Supplies Expense
Jan. 31 $4,050	Clos. 2 $4,050
Bal. 0

Advertising Expense
Jan. 31 $9,800	Clos. 2 $9,800
Bal. 0

Conclusion

Conclusion:

Nelson Company’s net income for the period ended January 31, 2017 is $975 and the total assets, liabilities and owner’s equity is $40,775.