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Concept explainers
Concept Introduction:
Adjusting entries are prepared to complete the financial statement of the company and to reflect the accrual method of accounting. Adjusting entries are prepared before issuance of financial statement.
To prepare:
To prepare adjusting
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Answer to Problem 5BPSB
Date | Accounts titles and Explanation | Debit ($) | Credit ($) |
Jan.31 | Store supplies expense | 6,000 | |
Store supplies | 6,000 | ||
(To record the store supplies available at year end) | |||
Jan.31 | Insurance Expense | 2,800 | |
Prepaid insurance | 2,800 | ||
(To record expired insurance) | |||
Jan.31 | 3,000 | ||
3,000 | |||
(To record the depreciation expense on store-Equipment) | |||
Jan.31 | Cost of goods sold | 2,700 | |
Merchandise inventory | 2,700 | ||
(To record the cost of goods sold of inventory) |
Explanation of Solution
Journal entries are explained as follows-
- In this entry, store supplies are available at the end. So to adjust this, store supplies are recorded as an expense and debited in the entry. Store supplies are current assets as they are decreasing so it gets credited.
- In this entry, Expired insurance is recorded. Insurance is an expense for the company so it is debited and prepaid insurance are current assets as they are decreasing so it gets credited.
- In this entry, Depreciation expense is recorded. So it is debited. Assets gets reduced with such amount so accumulated depreciation is credited.
- In this entry cost of goods sold are recorded. So inventory will get reduced with such amount, so it is credited.
Conclusion:
Thus, the adjusting journal entries are prepared.
Concept Introduction:
Multiple-step Income statement
Multiple step income statement is one of the format of preparing income statement. Another format of preparing income statement is single step income statement.
Multiple step income statement provides more information than a single step income statement. It involves more than one deduction.
To prepare-
To prepare multiple step income statement.
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Answer to Problem 5BPSB
Multiple step Income statement | ||
Nelson Co. | ||
| | |
Particulars | Amount ($) | Amount ($) |
Sales revenue: | ||
Sales | 227,100 | |
Less: Sales discount | 1,000 | |
Less: Sales returns and allowances | 5,000 | |
Net sales | 221,100 | |
Less: Cost of goods sold (75,800+2,700) | 78,500 | |
Gross profit | 142,600 | |
Operating Expenses | ||
Selling expenses: | ||
Sales staff salaries | 31,500 | |
Advertising expense | 17,800 | |
Rent expense- selling space | 13,000 | |
Store supplies expense | 6,000 | |
Depreciation Expense- store equipment | 3,000 | 71,300 |
General and administrative expense: | ||
Office salaries expense | 31,500 | |
Rent expense-Office space | 13,000 | |
Insurance expense | 2,800 | 47,300 |
Total Operating expenses | 118,600 | |
Net income | 24,000 |
Explanation of Solution
Net Income is calculated as follows-
Gross profit is calculated as follows
Total Operating expenses is calculated as follows
Conclusion:
Thus, multiple-step income statement is prepared.
Concept Introduction:
Single-step Income statement
Single-step income statement is one of the format of preparing income statement. Another format of preparing income statement is multiple- step income statement.
In single step income statement, all the expenses included cost of goods sold is recorded in one column. Expenses are not divided into sub-categories.
To prepare-
To prepare single step income statement.
![Check Mark](/static/check-mark.png)
Answer to Problem 5BPSB
Single step Income statement | ||
Nelson Co. | ||
| | |
Particulars | Amount ($) | Amount ($) |
Sales revenue: | ||
Sales | 227,100 | |
Less: Sales discount | 1,000 | |
Less: Sales returns and allowances | 5,000 | |
Net sales | 221,100 | |
Less: Expenses: | ||
Cost of goods sold | 78,500 | |
Sales staff salaries | 31,500 | |
Advertising expense | 17,800 | |
Rent expense- selling space | 13,000 | |
Store supplies expense | 6,000 | |
Depreciation Expense- store equipment | 3,000 | |
Office salaries expense | 31,500 | |
Rent expense-Office space | 13,000 | |
Insurance expense | 2,800 | |
Total expenses | 197,100 | |
Net income | 24,000 |
Explanation of Solution
Net Income is calculated as follows
Net sales is calculated as follows-
Total expenses is calculated as follows
Conclusion:
Thus, single-step income statement is prepared.
Concept Introduction:
Current ratio is a ratio which helps to measure the ability of company to pay the obligations of the company. It is calcuated by using following formula
Acid-test ratio
It is a ratio which measures the ability of company to use its short term cash to repay the liabilities immediately. It is calcuated by using following formula
Gross margin ratio
Gross margin ratio assesses the profitability of the company by stating gross margin as a percenatge of sales. It is calculated by usimg following formula-
To Calculate-
To compute current ratio, Acid test ratio, Gross margin ratio.
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Answer to Problem 5BPSB
Explanation of Solution
- Current ratio-
- Acid-test ratio-
- Gross-margin ratio-
Gross margin = 142,600 (Calculated in part 2)
Net sales = 221,100 (Calculated in part 2)
Conclusion:
Thus, ratios are calculated.
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Chapter 5 Solutions
Loose Leaf For Fundamental Accounting Principles Format: Loose-leaf
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