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The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company. Nelson Company uses a perpetual inventory system. It categorizes the following accounts

The following unadjusted trial balance is prepared at fiscal year-end for Nelson Company. Nelson 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.

NELSON COMPANY
Unadjusted Trial Balance
January 31
Debit Credit
Cash $ 21,850
Merchandise inventory 13,500
Store supplies 5,600
Prepaid insurance 2,700
Store equipment 42,900
Accumulated depreciationStore equipment $ 19,000
Accounts payable 14,000
Common stock 3,000
Retained earnings 31,000
Dividends 2,000
Sales 114,650
Sales discounts 1,850
Sales returns and allowances 2,150
Cost of goods sold 38,000
Depreciation expenseStore equipment 0
Sales salaries expense 13,050
Office salaries expense 13,050
Insurance expense 0
Rent expenseSelling space 7,500
Rent expenseOffice space 7,500
Store supplies expense 0
Advertising expense 10,000
Totals $ 181,650 $ 181,650

Additional Information:

  1. Store supplies still available at fiscal year-end amount to $1,900.
  2. Expired insurance, an administrative expense, is $1,450 for the fiscal year.
  3. Depreciation expense on store equipment, a selling expense, is $1,600 for the fiscal year.
  4. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,500 of inventory is still available at fiscal year-end.

Required: 1. Using the above information, prepare adjusting journal entries. 2. Prepare a multiple-step income statement for the year ended January 31 that begins with gross sales and includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses. 3. Prepare a single-step income statement for the year ended January 31.

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