Question

[The following information applies to the questions displayed below.) 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 Expense-Store Equipment, Sales Salaries Expense, Rent Expense-Selling 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 $ 21,050 Merchandise inventory 14,000 Store supplies 5,900 Prepaid insurance 2,800 Store equipment 42,700 Accumulated depreciation-Store equipment $ 19,950 Accounts payable 12,000 Common stock 6,000 Retained earnings 29,000 Dividends 2,250 Sales 114,900 Sales discounts 2,100 Sales returns and allowances 2,150 Cost of goods sold 38,000 Depreciation expense-Store equipment © Sales salaries expense 12,750 Office salaries expense 12,750 Insurance expense @ Rent expense-Selling space 8,000 Rent expense-office space 8,000 Store supplies expense Advertising expense 9,400 Totals $181,850 $181,850 @ Additional Information: a. Store supplies still available at fiscal year-end amount to $2,500. b. Expired insurance, an administrative expense, is $1,700 for the fiscal year. c. Depreciation expense on store equipment, a selling expense, is $1,650 for the fiscal year. d. To estimate shrinkage, a physical count of ending merchandise inventory is taken. It shows $10,600 of inventory is still available at fiscal year-end.

Answer 1

Gross Margin ratio		=	Gross Margin / Gross Sales
		=	$ 69250 / $ 114900
		=	0.60

Workings:

	Adjusted Cost of Goods sold
	Unadjusted cost of goods sold			$ 38,000.00
Add:	Inventory sold			$   3,400.00
				$ 41,400.00

	Income Statement
	Net Sales:
	Sales			$ 1,14,900.00
Less:	Sales Discounts			$      2,100.00
Less:	Sales returns and allowances			$      2,150.00
	Net Sales				$ 1,10,650.00
Less:	Cost of Goods sold				$    41,400.00
	Gross Margin				$    69,250.00

Is this correct?