Guitar Universe Assignment
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Guitar Universe Assignment
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Guitar Universe, Inc., is a popular source of musical instruments for professional and amateur muscians. The company’s accountants make necessary adjusting entries monthly, and they make all closing entries annually. Guitar Universe is growing rapidly and prides itself on having no long-term liabilities.
The company has provided the following trial balance dated December 31, 2011:
Guitar Universe, Inc.
Trial Balance
December 31, 2011
Cash………………………………………………………………$ 45,000
Marketable securities………………………………………….. 25,000
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
Unrealized holding gain or investments……………….. 6,000
Sales…………………………………………………………1,600,000
Cost of goods sold………………………………………… 958,000
Bank service charges…………………………………….. 200
Uncollectible accounts expense………………………… 9,000
Salary and wages expense……………………………… 395,000
Office supplies expense………………………………….400
Insurance expense……………………………………….. 6,400
Utilities expense…………………………………………… 3,600
Depreciation expense…………………………………….48,000
Income tax expense……………………………………..75,000
$3,804,2003,804,200
Guitar Universe Assignment
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Other information pertaining to Guitar Universe’s trial balance is shown below:
1. The company’s most recent bank statement reports a balance of $46,975. Included with the bank statement was a $2,500 check from Iggy Bates, a professional musician, charged back to Guitar Universe as NSF. The bank’s monthly service charge was $25. Three checks writen by Guitar Universe to suppliers of merchandise inventory had not yet cleared the bank for payment as of the statement date. These checks included: no. 507, $4,000; no. 511, $9,000; and no. 521, $8,000. Deposits made by Guitar Universe of $16,500 had reached the bank too late for inclusion in the current statement. The company prepares a bank reconciliation at the end of each month.
2. Guitar Universe has a portfolio of marketable securities. The initial investment in the portfolio was $19,000. As of December 31, the market value of these securities was $27,500. Management classifies all short-term investements as “available for sale.”
3. During December, $6,400 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 $8,500 was needed at December 31, 2011.
4. The company uses a perpetual inventory system. A year-end physicial 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.
5. At December 31, approximately $900 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, 2011. The cost of this policy was slightly higher than the cost of coverage for the previous 12 months.
Guitar Universe Assignment
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7. Depreciation expense related to the company’s building and fixtures is $5,000 for the month ending December 31, 2011.
8. Although Guitar Universe 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 on 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 an increase to sales.
9. Accrued income taxes payable for the entire year ending December 31, 2011, total $81,000. no income tay payments are due until early in 2012.
Guitar Universe Assignment
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Instructions
a. Prepare a bank reconciliation and make the necessary journal entries to update the accounting records of Guitar Universe as of December 31, 2011.
b. Prepare the necessary adjusting entry to update the company’s marketable securities portfolio to its mark-to-market value.
c. Prepare teh adjusting entry at December 31, 2011, to report the company’s accounts receivable at their net realizable value.
d. Prepare the entry to account for the guitars missing from the company’s inventory at the end of the year.
e. Prepare the adjusting entry to account for the office supplies used during December.
f. Prepare the adjusting entry to account for the expiration of the company’s insurance policies during Dec.
g. Prepare the adjusting entry to account for the depreciation of the company’s building and fixtures during December.
h. Prepare the adjusting entry to report the portion of unearned customer deposits that were earned during December.
i. Prepare the adjusting entry to account for income tax expense that accrued during December.
On a spreadsheet show all computations.
Comment briefly upon the company’s financial from the perspective of a short-term creditor
Guitar Universe Assignment
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