COMPREHENSIVE PROBLEM 2 MCGRAW-HILL IRWIN 14TH EDITION OF FINANCIAL…

COMPREHENSIVE PROBLEM 2 MCGRAW-HILL IRWIN 14TH EDITION OF FINANCIAL ACCOUNTING

Guitar Universe, Inc..is a popular source of musical instruments for professional and amateur musicians. The companys accountant makes necessary adjusting entries monthly, and they make all closing entries annually. Guitar Univrse is growing rapidly and prides itself on having no long-term liabilities.
The company has provided the following trial balance dated December 31,2009:

Cash..........................................$45,000
Marketable Securities..................25,000
Accounts receivable..................125,000
Allowance 4 Dbtful Accts......................................$5,000
Merchandise inventory..............250,000
Office Supplies.............................1,200
Prepaid insurance........................6,600
Bldng and Fixtures.................1,791,000
Accumulated deprec............................................800,000
Land............................................64,800
Accounts Payable..................................................70,000
Unearned customer Deposits..................................8,000
Income Taxes payable...........................................75,000
Capitol Stock.....................................................1,000,000
Retained Earnings................................................240,200
Unrealized Holdng gain on invest.............................6,000
Sales..................................................................1,600,000
Cost of Goods Sold..................958,000
Bank Service charge.......................200
Uncollectible Accts expense........9,000
Salary and wages exp..............395,000
Office supplies expense................. 400
Insurance expense...................... 6,400
utilities expense........................... 3,600
Depreciation exp.........................48,000
Income tax expense....................75,000
Total
$3,804,200 3,804,200
The companys most recent bank stmnt reports a balance of $46,975. included wit the bnk stmnt was a $2,500 check from iggy bates a professional musician charged back to guitar universe as NSF. the banks monthly service charge was $25.3 chks written by guitar universe to suppliers of merchandise ineventory had not yet cleared the bank for payment as of the stmnt date. the chks include 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 stmnt. the company prepares a bank reconciliation at the end of each month.
Guitar Universe has a portfolio of marketable securities. teh initial investment im the portfolio was $19,000. as of Dec 31, the market value of these securities was $27,500. Management classifies all short trm investments as "available for sale."
During Dec,$6,400 off a/r were written off as uncollectible. A recent aging of the companys accts rec hlped mngmnt to conclude that an allowance for doubtful accts of $8,500 was needed at Dec 31,2009.
The company uses a perpetual inventory sytem. a year end physical count revealed that several guitars reported in inventory were missing.the cost of the missing guitars amounted to #1,350. this amnt os not considerd significant relative to the total cost of inventory on hand.
at Dec 31, approx $900 in office supplies remained on hand
the company pays for insurance polocies 12 months in advance. its most recent pymnt was made on Nov 1,2009. the cost of this policy was slightly higher than the cost of coverage for the previous 12 months.
Depreciation expense related to the companys building and fixtures is $5,000 for the month ending dec 31,2009.
Custom made guitars are non-refundable and the orders have to be paid in advance, the entire sale amnt is collected at time a custom order is placed, and is credited to the acct entitled "unearned Customer Deposits. As of Dec 31,2009 $4,800 of these deposits remained unearned. assume that the cgs and the reduction in inventory associated with all custom orders is recorded when the custom merchandise is del to customers. thus the adjusting entry requires only a decrease to unearned customer deposits and an increase to sales.
Accrued income taxes payable for the entire year ending Dec 31,2009 total $81,000 no
income tax payments are due until early 2010.
prepare a bank reconciliation and make the necessary journal entries to update the accounting records of guitar universe as of Dec 31,2009.
prepare the necessary adjustment entry to update the company's marketable securities portfolio to its mark to market value.
prepare the adjusting entry at Dec 31,2009, to report the companys accts rec at their realizable value.
prepare the entry to acct for the guitars missing from the company's inventory at the end of the year.
prepare the adjusting entry to the acct for the office supplies used during Dec.
prepare the adjusting entry to acct for the expiration of the companys insurance policies during Dec.
prepare the adjusting entry to acct for the depreciation of the companys building and fixtures during Dec.
prepare the adjustment entry to report the portion of unread customer deposits that were earned during December.
prepare the adjusting entry to acct for income tax exprnse that accrued during december.
on the basis of adjustments made to the acctng records in part a through i above,
prepare the companys adjusted trial balance at dec 31 2009
using the adjusted trial balance prepared in part j above,prepare an annual income statement, statemnet of retained earnings, and a balance sheet dated Dec 31,2009
Using the financial stmnts prepared in part k, determine approximately how many days an acct rec reamains outstanding before it is collected, you may assume the companys ending acct rec balance on Dec 31 is a close approximationof its average mercahndise inventory balance through out the year.
using the financial stmnts prepared in part k,determine approximately how many days it takes to convert the companys inventory into cash. stated diffrently, which is the lenghth of he companys operating cycle.
comment briefly upon the companys financial condition from the perspective of a short term creditor.
All bulleted text should be read as a-b-c etc.


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