Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Music-Is-Us, Inc., is a supplier of musical instruments for professional and amateur musicians. The companys accountants make adjusting entries monthly , and they make all

Music-Is-Us, Inc., is a supplier of musical instruments for professional and amateur musicians. The companys accountants make adjusting entries monthly, and they make all closing entries annually. The company is growing rapidly and prides itself on having no long-term liabilities.

The company has provided the following trial balance dated December 31, 2015:

MUSIC-IS-US, INC. TRIAL BALANCE DECEMBER 31, 2015

Cash

$

49,000

Marketable securities

29,000

Accounts receivable

128,000

Allowance for doubtful accounts

$

5,200

Merchandise inventory

258,000

Office supplies

1,500

Prepaid insurance

7,040

Building and fixtures

1,797,000

Accumulated depreciation

799,000

Land

74,800

Accounts payable

67,000

Unearned customer deposits

7,900

Income taxes payable

72,000

Capital stock

930,000

Retained earnings

233,200

Unrealized holding gain on investments

5,900

Sales

1,709,180

Cost of goods sold

956,000

Bank service charges

240

Uncollectible accounts expense

8,400

Salary and wages expense

392,000

Office supplies expense

300

Insurance expense

5,900

Utilities expense

3,200

Depreciation expense

47,000

Income tax expense

72,000

$

3,829,380

$

3,829,380

Other information pertaining to Guitar Universes trial balance is shown below:

1.

The most recent bank statement reports a balance of $51,470. Included with the bank statement was a $2,100 check from Iggy Smarts, a professional musician, charged back to Music-Is-Us as NSF. The banks monthly service charge was $30. Three checks written by Music-Is-Us to suppliers of merchandise inventory had not yet cleared the bank for payment as of the statement date. These checks included: no. 508, $3,800; no. 511, $9,200; and no. 521, $8,400. Deposits of $16,800 reached the bank too late for inclusion in the current bank statement. The company prepares a bank reconciliation at the end of each month.

2.

Music-Is-Us has a portfolio of marketable securities that originally cost $23,000. As of December 31, the market value of these securities was $31,800. All short-term investments are classified as "available for sale."

3.

During December, $5,900 of accounts receivable were written off as uncollectible. A recent aging of the company's accounts receivable helped management to conclude that an allowance for doubtful accounts of $7,700 was needed at December 31, 2015.

4.

The company uses a perpetual inventory system. A year-end physical count revealed that several guitars reported in the inventory records were missing. The cost of the missing units amounted to $1,500. This amount is not considered significant relative to the total cost of inventory on hand.

5.

At December 31, approximately $850 in office supplies remained on hand.

6.

The company pays for its insurance policies 12 months in advance. Its most recent payment was made on November 1, 2015. The cost of this policy was slightly higher than the cost of coverage for the previous 12 months.

7.

Depreciation expense related to the company's building and fixtures is $7,000 for the month ending December 31, 2015.

8.

Although Music-Is-Us carries an extensive inventory, it is not uncommon for experienced musicians to order custom guitars made to their exact specifications. Manufacturers do not allow any sales returns of custom-made guitars. The entire sales amount is collected at the time a custom order is placed, and is credited to an account entitled "Unearned Customer Deposits." As of December 31, $4,200 of these deposits remained unfilled because the special-order guitars have not been received from the manufacturer. The cost of goods sold and the reduction in inventory associated with all custom orders is recorded when the custom merchandise is delivered to customers. At that time, the adjusting entry requires only a decrease to unearned customer deposits and an increase in sales.

9.

Accrued income taxes payable for the entire year ending December 31, 2015, total $83,000. No income tax payments are due until early in 2016.

1. (a) Prepare a bank reconciliation and make the journal entries to update the accounting records of Music-Is-Us as of December 31, 2015.

2. (b-i) Prepare the necessary adjusting entries at December 31, 2015

3. ( j ) On the basis of the adjustments made to the accounting records in parts a through i above, prepare the company's adjusted trial balance at December 31, 2015.

4. (k-1) Using the adjusted trial balance prepared in part j above, prepare an annual income statementdated December 31, 2015.

5. (k-2) Using the adjusted trial balance prepared in part j above, prepare statement of retained earnings dated December 31, 2015.

6. (k-3) Using the adjusted trial balance prepared in part j above, prepare a balance sheet dated December 31, 2015.

7. ( l ) Using the financial statements prepared in part k above, determine approximately how many days an account receivable remains outstanding before it is collected. You may assume that the company's ending accounts receivable balance on December 31 is a close approximation of its average accounts receivable balance throughout the year.

Number of Days ____

8. ( m ) Using the financial statements prepared in part k, determine approximately how many days an item of merchandise remains in stock before it is sold. You may assume that the company's ending merchandise inventory balance on December 31 is a close approximation of its average merchandise inventory balance throughout the year

Number of Days ____

9. ( n ) Using the financial statements prepared in part k, determine approximately how many days it takes to convert the company's inventory into cash.

Number of Days ___

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Audit Planning A Risk Based Approach

Authors: K. H. Spencer Pickett

1st Edition

047169052X, 978-0471690528

More Books

Students also viewed these Accounting questions

Question

Comment should this MNE have a global LGBT policy? Why/ why not?

Answered: 1 week ago