Preparing adjusting entries and income statements; computing gross margin, acid-test, and current ratios

P3 P4 A1

The following unadjusted trial balance is prepared at fiscal year-end for Foster Products Company. Foster Products 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, and Advertising Expense. It categorizes the remaining expenses as general and administrative.

Required

1.Prepare adjusting journal entries to reflect each of the following:

a.Store supplies still available at fiscal year-end amount to $3,700.

b.Expired insurance, an administrative expense, is $2,800 for the fiscal year.

c.Depreciation expense on store equipment, a selling expense, is $3,000 for the fiscal year.

d.To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $21,300 of inventory is still available at fiscal year-end.

2.Prepare a multiple-step income statement for the year ended October 31 that begins with gross sales and includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses.

Check (2) Gross profit, $142,600

(3) Total expenses, $197,100; Net income, $24,000

3.Prepare a single-step income statement for the year ended October 31.

4.Compute the current ratio, acid-test ratio, and gross margin ratio as of October 31. (Round ratios to two decimals.)