Loose Leaf For Fundamental Accounting Principles Format: Loose-leaf
Loose Leaf For Fundamental Accounting Principles Format: Loose-leaf
24th Edition
ISBN: 9781260158557
Author: Wild
Publisher: Mcgraw Hill Publishers
Question
Book Icon
Chapter 5, Problem 3GLP
To determine

Concept Introduction:

Adjusting Entries:

An adjusting entry is a journal entry which intends to record the expenses and revenue occurred during the accounting period.

Requirement 1:

1. Preparation of adjusting entries as January 31.

Expert Solution
Check Mark

Answer to Problem 3GLP

    DateAccountsDebitCredit
    Jan. 31
    a)
    Store Supplies Expense
    $4,050
    Store Supplies
    $4,050
    b)
    Insurance Expense
    $1,400
    Prepaid Insurance
    $1,400
    c)
    Depreciation Expense − Store Equipment
    $1,525
    Accumulated Depreciation − Store Equipment
    $1,525
    d)
    Cost of Goods Sold
    $1,600
    Merchandise Inventory
    $1,600

Explanation of Solution

Merchandise Inventory

    DateDescriptionDebitCreditBalance
    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 Trial Balance

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
To determine

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.

Expert Solution
Check Mark

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
To determine

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.

Expert Solution
Check Mark

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

To determine

Concept Introduction:

Current ratio:

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

Expert Solution
Check Mark

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

  = $14,650 / $10,000 = 1.47

*Current Asset = Cash + Merchandise Inventory + Store Supplies + Prepaid Insurance

  = $1,000 + $10,900 + $1,750 + $1,000 = $14,650

Acid-Test Ratio = Quick Asset / Current Liabilities

  = $2,750 / $10,000= 0.28

*Quick Asset = Current Assets − Merchandise Inventory − Prepaid Insurance

  = $14,650  $10,900  $1,000 = $2,750

Gross Margin Ratio = Gross Profit / Net Sales

  = $67,750 / $107,750 = 62.88%

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 5 Solutions

Loose Leaf For Fundamental Accounting Principles Format: Loose-leaf

Ch. 5 - Prob. 11DQCh. 5 - Prob. 12DQCh. 5 - Prob. 13DQCh. 5 - Refer to the income statement of Samsung in...Ch. 5 - Prob. 15DQCh. 5 - Applying merchandising terms C1 P1 Enter the...Ch. 5 - Identifying inventory costs C2 Costs of $5.000...Ch. 5 - Merchandise accounts and computations C2 Use the...Ch. 5 - Computing net invoice amounts P1 Compute the...Ch. 5 - Recording purchases, returns, and discounts taken...Ch. 5 - Recording purchases and discounts taken P1 Prepare...Ch. 5 - Recording purchases and discounts missed Pl...Ch. 5 - Recording sales, returns, and discounts taken P2...Ch. 5 - Accounting for shrinkage—perpetual system P3...Ch. 5 - Closing entries P3 Refer to QS 5-9 and prepare...Ch. 5 - Multiple-step income statement P4 For each item...Ch. 5 - Preparing a multiple-step income statement P4...Ch. 5 - Exercise 5-13 Physical count error and profits A2...Ch. 5 - Prob. 14QSCh. 5 - Prob. 15QSCh. 5 - Prob. 16QSCh. 5 - Recording purchases, returns, and...Ch. 5 - Recording sales. returns, and discounts—periodic &...Ch. 5 - Prob. 19QSCh. 5 - Prob. 20QSCh. 5 - Prob. 21QSCh. 5 - Prob. 22QSCh. 5 - QS 5-23 Sales transactions P2 Prepare journal...Ch. 5 - Exercise 5-1 Computing revenues, expenses, and...Ch. 5 - Prob. 2ECh. 5 - Exercise 5-3 Recording purchases, purchases...Ch. 5 - Exercise 5-4 Recording sales, sales returns, and...Ch. 5 - Exercise 5.5 Recording purchases, purchases...Ch. 5 - Exercise 5-6 Recording sales, purchases, and cash...Ch. 5 - Exercise 5-7 Recording sales, purchases, shipping,...Ch. 5 - Exercise 5-8 Inventory and cost of sales...Ch. 5 - Exercise 5-9 Recording purchases, sales, returns,...Ch. 5 - Exercise 5-10 Preparing adjusting and closing...Ch. 5 - Prob. 11ECh. 5 - Exercise 5-12 Impacts of inventory error on key...Ch. 5 - Exercise 5-13 Physical count error and profits...Ch. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 18ECh. 5 - Prob. 19ECh. 5 - Prob. 20ECh. 5 - Prob. 21ECh. 5 - Prob. 22ECh. 5 - Prob. 23ECh. 5 - Prob. 24ECh. 5 - Prob. 25ECh. 5 - Problem 5-1A Preparing journal entries for...Ch. 5 - Problem 5-2A Preparing journal entries for...Ch. 5 - Problem 5-3A Computing merchandising amounts and...Ch. 5 - Problem 5-4A Preparing closing entries and...Ch. 5 - Prob. 5APSACh. 5 - Problem 5-1 B Preparing journal entries for...Ch. 5 - Problem 5-2B Preparing journal entries for...Ch. 5 - Problem 5-3B Computing merchandising amounts and...Ch. 5 - Problem 5-4B Preparing closing entries and...Ch. 5 - Problem 5-5B Preparing adjusting entries and...Ch. 5 - SP 5 Santana Rey created Business Solutions on...Ch. 5 - Prob. 1GLPCh. 5 - Prob. 2GLPCh. 5 - Prob. 3GLPCh. 5 - Prob. 1AACh. 5 - Key comparative figures for Apple and Google...Ch. 5 - Prob. 3AACh. 5 - Prob. 1BTNCh. 5 - Prob. 2BTNCh. 5 - Prob. 3BTNCh. 5 - Prob. 4BTNCh. 5 - Prob. 5BTNCh. 5 - Prob. 6BTN
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education