
Concept Introduction:
An adjusting entry is a
Requirement 1:
1. Preparation of adjusting entries as January 31.

Answer to Problem 3GLP
Date | Accounts | Debit | Credit |
Jan. 31 | |||
a) | Store Supplies Expense | $4,050 | |
Store Supplies | $4,050 | ||
b) | Insurance Expense | $1,400 | |
Prepaid Insurance | $1,400 | ||
c) | $1,525 | ||
| $1,525 | ||
d) | Cost of Goods Sold | $1,600 | |
Merchandise Inventory | $1,600 |
Explanation of Solution
Merchandise Inventory
Date | Description | Debit | Credit | Balance |
Jan. 31 | Balance | $12,500 | ||
1(d) | Cost of Goods Sold | $1,600 | $10,900 |
Store Supplies
Date | Description | Debit | Credit | Balance |
Jan. 31 | Balance | $5,800 | ||
1(a) | Store Supplies Expense | $4,050 | $1,750 |
Prepaid Insurance
Date | Description | Debit | Credit | Balance |
Jan. 31 | Balance | $2,400 | ||
1(b) | Insurance Expense | $1,400 | $1,000 |
Accumulated Depreciation − Store Equipment
Date | Description | Debit | Credit | Balance |
Jan. 31 | Balance | $15,250 | ||
1(c) | Depreciation Expense − Store Equipment | $1,525 | $16,775 |
Depreciation Expense - Store Equipment
Date | Description | Debit | Credit | Balance |
Jan. 31 | Balance | $0 | ||
1(c) | Accumulated Depreciation − Store Equipment | $1,525 | $1,525 |
Insurance Expense
Date | Description | Debit | Credit | Balance |
Jan. 31 | Balance | $0 | ||
1(b) | Prepaid Insurance | $1,400 | $1,400 |
Store Supplies Expense
Date | Description | Debit | Credit | Balance |
Jan. 31 | Balance | $0 | ||
1(a) | Store Supplies | $4,050 | $4,050 |
Cost of Goods Sold
Date | Description | Debit | Credit | Balance |
Jan. 31 | Balance | $38,400 | ||
1(d) | Merchandise Inventory | $1,600 | $40,000 |
Adjusted
NELSON COMPANY Adjusted Trial Balance January 31 | ||
Accounts | 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 Discount | 2,000 | |
Sales Return and Allowance | 2,200 | |
Cost of Goods Sold | 40,000 | |
Depreciation Expense - Store Equipment | 1,525 | |
Sales Salaries Expense | 17,500 | |
Office Salaries Expense | 17,500 | |
Insurance Expense | 1,400 | |
Rent Expense − Selling Space | 7,500 | |
Rent Expense − Office Space | 7,500 | |
Store Supplies Expense | 4,050 | |
Advertising Expense | 9,800 | |
Totals | $170,725 | $170,725 |
Concept Introduction:
Multiple Income Statement:
The income statement which classifies the items of revenues and expenses during an accounting period into different categories like gross profit, operating and non-operating revenues and expenses is called a multiple income statement.
Requirement 2:
To prepare:
Prepare a multiple-step income statement for the year ended January 31.

Answer to Problem 3GLP
Multiple-Step Income Statement | |
Gross Profit | $67,750 |
Operating Expense: | |
Selling Expense | 40,375 |
General and Administrative Expense | 26,400 |
Net Income | $975 |
Explanation of Solution
NELSON COMPANY Multiple-Step Income Statement January 31 | ||
Revenue: | ||
Sales | $111,950 | |
Less: Sales Discount | $2,000 | |
Sales Return and Allowance | 2,200 | 4,200 |
Net Sales | 107,750 | |
Cost of Goods Sold | 40,000 | |
Gross Profit | 67,750 | |
Operating Expense | ||
Selling Expense | ||
Depreciation Expense - Store Equipment | 1,525 | |
Sales Salaries Expense | 17,500 | |
Advertising Expense | 9,800 | |
Store Supplies Expense | 4,050 | |
Rent Expense − Selling Space | 7,500 | |
Total Selling Expense | 40,375 | |
General and Administration Expense |
Concept Introduction:
Single step Income statement:
It is one of the two generally used income statements. In this type the Net Income is found by only one subtraction.
Requirement 3:
To prepare:
Prepare a single-step income statement for the year ended January 31.

Answer to Problem 3GLP
Single-Step Income Statement | |
Total Expense | $106,775 |
Net income | $975 |
Explanation of Solution
3.
NELSON COMPANY Single-Step Income Statement January 31 | ||
Revenue: | ||
Net Sales | $107,750 | |
Expenses: | ||
Cost of Goods Sold | 40,000 | |
Depreciation Expense - Store Equipment | 1,525 | |
Sales Salaries Expense | 17,500 | |
Office Salaries Expense | 17,500 | |
Insurance Expense | 1,400 | |
Rent Expense − Selling Space | 7,500 | |
Rent Expense − Office Space | 7,500 | |
Office Supplies Expense | 4,050 | |
Advertising Expense | 9,800 | |
Total Expense | $106,775 | |
Net Income | $975 |
*Net Sales = Sales − Sales Discounts − Sales Returns and Allowances
= $111,950 - $2,000 - $2,200
= $107,750
Concept Introduction:
A ratio that measures the company's ability to pay off short and long term obligations are known as current ratio.
Acid test ratio:
A ratio that measures the company's ability to cover current liabilities using the short term assets is known as acid test ratio.
Gross margin ratio:
A profitability ratio that measures how company sells its inventory is known as gross margin ratio.
Requirement 4:
To Compute:
Computation of current ratio, acid-test ratio and gross margin ratio

Answer to Problem 3GLP
Ratios | |
Current Ratio | 1.47 |
Acid-Test Ratio | 0.28 |
Gross Margin Ratio | 62.88% |
Explanation of Solution
Current Ratio = Current Asset / Current Liabilities
*Current Asset = Cash + Merchandise Inventory + Store Supplies + Prepaid Insurance
Acid-Test Ratio = Quick Asset / Current Liabilities
*Quick Asset = Current Assets − Merchandise Inventory − Prepaid Insurance
Gross Margin Ratio = Gross Profit / Net Sales
Want to see more full solutions like this?
Chapter 5 Solutions
Loose Leaf For Fundamental Accounting Principles Format: Loose-leaf
- Pell Company acquires 80% of Demers Company for $500,000 on January 1, 2022. Demers reported common stock of $300,000 and retained earnings of $210,000 on that date. Equipment was undervalued by $30,000 and buildings were undervalued by $40,000, each having a 10-year remaining life. Any excess consideration transferred over fair value was attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not been impaired. Demers earns income and pays dividends as follows: 2022 2023 2024 Net income $ 100,000 $ 120,000 $ 130,000 Dividends 40,000 50,000 60,000 Assume the partial equity method is applied. Compute the noncontrolling interest in Demers at December 31, 2024. Multiple Choice $146,800 $160,800 $107,800 $80,000 $140,000arrow_forwardProvide General Accounting Questionarrow_forwardProvide answer pleasearrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





