Question: Comprehensive Problem 2 Music-Is-Us, Inc., is ...

Comprehensive Problem 2

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	$	48,000
Marketable securities		30,000
Accounts receivable		133,000
Allowance for doubtful accounts				$	5,300
Merchandise inventory		258,000
Office supplies		1,400
Prepaid insurance		6,490
Building and fixtures		1,794,000
Accumulated depreciation					791,000
Land		72,800
Accounts payable					65,000
Unearned customer deposits					7,600
Income taxes payable					74,000
Capital stock					980,000
Retained earnings					233,200
Unrealized holding gain on investments					5,500
Sales					1,662,790
Cost of goods sold		954,000
Bank service charges		200
Uncollectible accounts expense		8,100
Salary and wages expense		388,000
Office supplies expense		500
Insurance expense		5,900
Utilities expense		3,000
Depreciation expense		47,000
Income tax expense		74,000
	$	3,824,390		$	3,824,390

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

1.

The most recent bank statement reports a balance of $50,275. Included with the bank statement was a $2,400 check from Iggy Smarts, a professional musician, charged back to Music-Is-Us as NSF. The banks monthly service charge was $25. 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, $3,900; no. 511, $9,300; and no. 521, $8,000. Deposits of $16,500 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 $24,000. As of December 31, the market value of these securities was $32,700. All short-term investments are classified as "available for sale."

3.	During December, $6,000 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 $1,150. This amount is not considered significant relative to the total cost of inventory on hand.

5.	At December 31, approximately $810 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 $5,000 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, $4,400 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 $81,000. No income tax payments are due until early in 2016.

References

Section BreakComprehensive Problem 2

1.

value: 3.00 points

Required information

Comprehensive Problem 2 Part a

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

References

Financial StatementComprehensive Problem 2 Part aDifficulty: 3 Hard

Check my work

2.

value: 9.00 points

Required information

Comprehensive Problem 2 Part b-i

b-i	Prepare the necessary adjusting entries at December 31, 2015. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

rev: 11_24_2015_QC_CS-34101

References

Financial StatementComprehensive Problem 2 Part b-iDifficulty: 3 Hard

Check my work

3.

value: 3.00 points

Required information

Comprehensive Problem 2 Part j

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.

References

Financial StatementComprehensive Problem 2 Part jDifficulty: 3 Hard

Check my work

4.

value: 9.00 points

Required information

Comprehensive Problem 2 Part k

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

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

k-3.	Using the adjusted trial balance prepared in part j above, prepare a balance sheet dated December 31, 2015. (Amounts to be deducted should be indicated with minus sign.)

References

Financial StatementComprehensive Problem 2 Part kDifficulty: 3 Hard

Check my work

5.

value: 2.00 points

Required information

Comprehensive Problem 2 Part l

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. (Use 365 days a year. Round intermediate calculations to 1 decimal place and your final answer to the nearest whole number. )