Prepare the adjusting entry to account for the depreciation of the company's building and fixtures during December  b. Prepare the adjusting entry to report the portion of unearned customer deposits that were earned during December  c. Prepare the adjusting entry to account for income tax expense that accrued during December

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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a. Prepare the adjusting entry to account for the depreciation of the company's building and fixtures during December 

b. Prepare the adjusting entry to report the portion of unearned customer deposits that were earned during December 

c. Prepare the adjusting entry to account for income tax expense that accrued during December 

## Comprehensive Problem 2: Music-Is-Us, Inc.

### Overview:
Music-Is-Us, Inc. is a supplier of musical instruments catering to both professional and amateur musicians. The company's accountants perform monthly adjusting entries and annual closing entries. As a rapidly growing company, Music-Is-Us, Inc. takes pride in maintaining no long-term liabilities.

### Trial Balance (As of December 31, 2018):

#### Music-Is-Us, Inc.
#### Trial Balance
#### December 31, 2018

**Assets:**
- Cash: $45,000
- Marketable securities: $25,000
- Accounts receivable: $125,000
- Allowance for doubtful accounts: $5,000 (credit)
- Merchandise inventory: $250,000
- Office supplies: $1,200
- Prepaid insurance: $6,600
- Building and fixtures: $1,791,000
- Land: $64,800

**Liabilities:**
- Accounts payable: $70,000
- Unearned customer deposits: $8,000
- Income taxes payable: $75,000

**Equity:**
- Capital stock: $1,000,000
- Retained earnings: $240,200
- Unrealized holding gain on investments: $6,000

**Revenue:**
- Sales: $1,600,000

**Expenses:**
- 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

**Total Debits: $3,804,200**
**Total Credits: $3,804,200**

### Additional Information:

1. **Bank Statement Reconciliation:**
   - The latest bank statement reports a balance of $46,975.
   - Included in this statement is a $2,500 check from Iggy Smarts, a professional musician, which was returned due to NSF (Non-Sufficient Funds). 
   - The bank's monthly service charge was $25.
   - Three checks written by Music-Is-Us, Inc. to suppliers of merchandise inventory had
Transcribed Image Text:## Comprehensive Problem 2: Music-Is-Us, Inc. ### Overview: Music-Is-Us, Inc. is a supplier of musical instruments catering to both professional and amateur musicians. The company's accountants perform monthly adjusting entries and annual closing entries. As a rapidly growing company, Music-Is-Us, Inc. takes pride in maintaining no long-term liabilities. ### Trial Balance (As of December 31, 2018): #### Music-Is-Us, Inc. #### Trial Balance #### December 31, 2018 **Assets:** - Cash: $45,000 - Marketable securities: $25,000 - Accounts receivable: $125,000 - Allowance for doubtful accounts: $5,000 (credit) - Merchandise inventory: $250,000 - Office supplies: $1,200 - Prepaid insurance: $6,600 - Building and fixtures: $1,791,000 - Land: $64,800 **Liabilities:** - Accounts payable: $70,000 - Unearned customer deposits: $8,000 - Income taxes payable: $75,000 **Equity:** - Capital stock: $1,000,000 - Retained earnings: $240,200 - Unrealized holding gain on investments: $6,000 **Revenue:** - Sales: $1,600,000 **Expenses:** - 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 **Total Debits: $3,804,200** **Total Credits: $3,804,200** ### Additional Information: 1. **Bank Statement Reconciliation:** - The latest bank statement reports a balance of $46,975. - Included in this statement is a $2,500 check from Iggy Smarts, a professional musician, which was returned due to NSF (Non-Sufficient Funds). - The bank's monthly service charge was $25. - Three checks written by Music-Is-Us, Inc. to suppliers of merchandise inventory had
### Financial Analysis and Adjustments for Music-Is-Us for the Year Ending December 31, 2018

#### Key Financial Information:

1. **Bank Reconciliation:**
    - Check Number 517: $7,500
    - Check Number 521: $8,000
    - Deposits: $16,500 (Uncleared by the bank)
    - A bank reconciliation is performed monthly by the company.

2. **Marketable Securities:**
    - Original Cost: $19,000
    - Market Value (as of December 31): $27,500
    - Classification: Available for sale

3. **Accounts Receivable:**
    - Written Off as Uncollectible: $6,400 (in December)
    - Allowance for Doubtful Accounts Required (as of December 31): $8,500

4. **Inventory Adjustments:**
    - Inventory System: Perpetual
    - Physical Count Discrepancy: Missing Guitars cost $1,350 (Not significant enough to impact inventory)

5. **Office Supplies on Hand:**
    - Remaining (as of December 31): Approx. $900

6. **Insurance Policies:**
    - Payment Frequency: Annually in advance
    - Latest Payment Date: November 1, 2018 
    - Coverage Duration: 12 months
    - Cost: Slightly Higher than previous year's

7. **Depreciation Expense:**
    - For Building and Fixtures (Month Ending December 31): $5,000

8. **Custom Guitar Orders:**
    - Special Orders: Impossibility of return upon customer's specification request 
    - Recorded Revenue: When the order is placed
    - Account: Unearned Customer Deposits
    - Unfilled Orders (as of December 31): $4,800
    - Adjustment Required: From unearned customer deposits to sales upon delivery

9. **Income Taxes:**
    - Accrued Payable for the Year (Ending December 31): $81,000
    - Payment Due: Early 2019

#### Instructions:
a. **Bank Reconciliation and Journal Entries:**
   - Prepare a bank reconciliation to adjust Music-Is-Us's records as of December 31, 2018.

### Graphs and Diagrams:
- This document does not contain any graphs or diagrams. It consists only of textual financial
Transcribed Image Text:### Financial Analysis and Adjustments for Music-Is-Us for the Year Ending December 31, 2018 #### Key Financial Information: 1. **Bank Reconciliation:** - Check Number 517: $7,500 - Check Number 521: $8,000 - Deposits: $16,500 (Uncleared by the bank) - A bank reconciliation is performed monthly by the company. 2. **Marketable Securities:** - Original Cost: $19,000 - Market Value (as of December 31): $27,500 - Classification: Available for sale 3. **Accounts Receivable:** - Written Off as Uncollectible: $6,400 (in December) - Allowance for Doubtful Accounts Required (as of December 31): $8,500 4. **Inventory Adjustments:** - Inventory System: Perpetual - Physical Count Discrepancy: Missing Guitars cost $1,350 (Not significant enough to impact inventory) 5. **Office Supplies on Hand:** - Remaining (as of December 31): Approx. $900 6. **Insurance Policies:** - Payment Frequency: Annually in advance - Latest Payment Date: November 1, 2018 - Coverage Duration: 12 months - Cost: Slightly Higher than previous year's 7. **Depreciation Expense:** - For Building and Fixtures (Month Ending December 31): $5,000 8. **Custom Guitar Orders:** - Special Orders: Impossibility of return upon customer's specification request - Recorded Revenue: When the order is placed - Account: Unearned Customer Deposits - Unfilled Orders (as of December 31): $4,800 - Adjustment Required: From unearned customer deposits to sales upon delivery 9. **Income Taxes:** - Accrued Payable for the Year (Ending December 31): $81,000 - Payment Due: Early 2019 #### Instructions: a. **Bank Reconciliation and Journal Entries:** - Prepare a bank reconciliation to adjust Music-Is-Us's records as of December 31, 2018. ### Graphs and Diagrams: - This document does not contain any graphs or diagrams. It consists only of textual financial
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