Music-Is-Us, Inc., is a supplier of musical instruments for professional and ama
ID: 2465894 • Letter: M
Question
Music-Is-Us, Inc., is a supplier of musical instruments for professional and amateur musicians. The company’s 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
26,000
Accounts receivable
125,000
Allowance for doubtful accounts
$
5,000
Merchandise inventory
255,000
Office supplies
2,100
Prepaid insurance
6,820
Building and fixtures
1,798,000
Accumulated depreciation
797,000
Land
69,800
Accounts payable
62,000
Unearned customer deposits
7,200
Income taxes payable
70,000
Capital stock
970,000
Retained earnings
240,200
Unrealized holding gain on investments
5,300
Sales
1,654,260
Cost of goods sold
955,000
Bank service charges
240
Uncollectible accounts expense
8,600
Salary and wages expense
391,000
Office supplies expense
400
Insurance expense
5,900
Utilities expense
3,100
Depreciation expense
46,000
Income tax expense
70,000
$
3,810,960
$
3,810,960
Other information pertaining to Guitar Universe’s trial balance is shown below:
1.
The most recent bank statement reports a balance of $50,570. Included with the bank statement was a $2,300 check from Iggy Smarts, a professional musician, charged back to Music-Is-Us as NSF. The bank’s 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, $4,300; no. 511, $8,800; and no. 521, $8,100. Deposits of $16,300 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 $20,000. As of December 31, the market value of these securities was $28,400. All short-term investments are classified as "available for sale."
3.
During December, $5,500 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 $7,900 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 $1,250. 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 $81,000. No income tax payments are due until early in 2016.
Prepare the necessary adjusting entries at December 31, 2015
Music-Is-Us, Inc., is a supplier of musical instruments for professional and amateur musicians. The company’s 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.
Explanation / Answer
Adjusting entries 1) Accounts receivable Dr 2300 Cash Cr 2300 ( To record check returned NSF) Bank Charges Dr 30 Cash Cr 30 ( To record bank charges) 2) Available for sale - short term investments Dr 8400 Unrealized gain Cr 8400 ( to record unrealized gain of investment 28400-20000) 3) Allowance for uncollectible accounts (PL) Dr 7900 Allowance for uncollectible accounts(BS) Cr 7900 ( To record allowance for uncollectibles) 4) Loss of inventory Dr 1250 Merchandise inventory Cr 1250 ( To record loss of guitars) 5) Office supplies expense Dr 1250 Office supplies Cr 1250 ( to record office supplies expense) 6) Insurance expense Dr 1136.67 Prepaid Insurance Cr 1136.67 ( to record insurance expense for 2 months 6820/12*2) 7) Depriciation expenses - Building & fixtures Dr 7000.00 Accumulated depricitaion - Building & fixtures Cr 7000.00 8) Unearned customer deposit Dr 3000.00 Sales Cr 3000.00 ( to record sales from unearned customer 7200-4200) 9) Income tax expense Dr 81000.00 Income tax payable Cr 81000.00 ( to accrue income tax expense)
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