Perfect Music Inc., is a popular source of musical instruments for professional and amateur musicians. The company's accountants make necessary adjusting entries monthly, and they make all closing entries annually. Perfect Music, Inc. is growing rapidly and prides itself on having no long-term liabilities. The company has provided the following trial balance dated December 31, 2015. Perfect Music Inc. Unadjusted Trial Balance December 31, 205 Cash $64,000 Accounts Receivable 125,000 Allowance for doubtful accounts $5,000 Merchandise Inventory 250,000 Office Supplies 1,200 Prepaid Insurance 6,600 Building and Fixtures 1,791,000 Accumulated Depreciation 800,000 Land 64,800 Accounts Payable 70,000 Unearned Customer Deposits 8,000 Income Taxes Payable 75,000 Capital Stock 1,000,000 Retained Earnings 240,200 Sales 1,600,000 Cost of Goods Sold 958,000 Bank Service Charges 200 Uncollectible Accounts Expense 9,000 Salary and Wages Expenses 395,000 Office Supplies Expense 400 Insurance Expense 6,400 Utilities Expense 3,600 Depreciation Expense 48,000 Income Tax Expense 75,000 $3,804,200 $3,804,200 1. The company's most recent bank statement reports a balance of $65,975. Included with the bank statement was a $2,500 check from Terry James, a professional musician, charged back to Perfect Music as NSF. The bank's monthly service charge was $25. Three checks written by Perfect Music 1 to suppliers of merchandise inventory had not yet cleared the bank for payment as of the statement date. These checks included: no. 503, $4,000; no. 508, $9,000; and no. 515, $8,000. Deposits made by Perfect Music of $16,500 had reached the bank too late for inclusion in the current statement. The company prepares bank reconciliation at the end of each month. 2. During December, $6,400 of accounts receivable were written off as uncollectible. A recent aging of the company's account receivable helped management to conclude that an allowance for doubtful accounts of $8,500 was needed at December 31, 2015. 3. The company uses 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 $1,350. This amount is not considered significant relative to the total cost of inventory on hand. 4. At December 31, approximately $900 in office supplies remained on hand. 5. 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 policy was slightly higher than the cost of coverage for the previous 12 months. 6. Depreciation expense related to the company's building and fixtures is $5,000 for the month ending December 31, 2015. 7. Although Perfect Music carries an extensive inventory, it is not uncommon for musicians to order custom guitars made to their exact specifications. Manufacturers do not allow any sales returns of custom- made guitars. Thus, all customers must pay in advance for these special orders. The entire sales amount is collected at the time a custom order is placed, and it is credited to an account entitled 'Unearned customer deposits'. As of December 31, $4,800 of these deposits remained unearned. Assume that 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. Thus, the adjusting entry requires only a decrease to unearned customer deposits and increase to sales. 8. Accrued income taxes payable for the entire year ending December 31, 2015, total $81,000. No income tax payments are due until early in 2016. a Instructions. a. Prepare a bank reconciliation and make the necessary journal entries to update the accounting records of Perfect Music as of December 31, 2015. b. Prepare the necessary adjusting entry at December 31, 2015, to report the company's accounts receivable as their net realizable value. c. Prepare the entry to account for the guitars missing from the company's Inventory at the end of the year. d. Prepare the adjusting entry to account for the office supplies used during December e. Prepare the adjusting entry to account for the expiration of the company's insurance policies during December. f. Prepare the adjusting entry to account for the depreciation of the company's building and fixtures during December. g. Prepare the adjusting entry to report the portion of unearned customer deposits that were eamed during December. h. Prepare the adjusting entry to account for income tax expense that accrued during December. I. Based upon the adjustments made to the accounting records in parts a through h above, prepare the company's adjusted trial balance at December 31, 2015. j. Using the adjusted trial balance prepared in part i above, prepare annual comprehensive income statement, statement of retained earnings, and a statement of financial position dated December 31, 2015