Prelim exam in ACC417/ACC412 REFRESHER

Part 1 (GROUP WORK – ADHERE TO YOUR GROUPING IN ACC417, ALL REFRESHER STUDENTS FORM ONE
GROUP)

INSTRUCTIONS: Using the MS excel solution sheet attached with this file, prepare/complete the following for
Guitar Universe, Inc.:

1. Adjusting entries
2. Worksheet for financial statements preparation
3. Statement of profit or loss and other comprehensive income for 2019
4. Statement of changes in equity for 2019
5. Statement of financial position as at December 31, 2019

EMAIL THE ACCOMPLISHED EXCEL SOLUTION SHEET to renantedbalocating@gmail.com no later than 12:00 PM
October 5, 2020.

Guitar Universe, Inc. is a popular source of musical instruments for professional and amateur musicians. The company’s
accountant makes necessary adjusting entries monthly and makes 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, 2019:

Cash P 45,000
Investments in equity securities 25,000
Accounts receivable 125,000
Allowance for doubtful accounts P 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 on 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 supply expense 400
Insurance expense 6,400
Utilities expense 3,600
Depreciation expense 48,000
Income taxes expense 75,000
3,804,200 3,804,200

Other information pertaining to Guitar Universe’s trial balance is shown below:

a. The company’s most recent bank statement reports a balance of P46,975. Included with the bank statement was a
P2,500 check from Iggy Bates, a professional musician, charged back to Guitar Universe as NSF. The bank’s
monthly service charge was P25. Three checks written by the company had not yet cleared the bank for payment
as of the statement date. These checks included: No. 507, P4,000; No. 511, P9,000; No. 521, P8,000. Deposits
made by Guitar Universe of P16,500 had reached the bank too late for inclusion in the current statement. The
company prepares a bank reconciliation at the end of each month.
1
 b. Guitar Universe has a portfolio of investment in equity securities. The initial investment in the portfolio was
P19,000. As of December 31, the market value of these securities was P27,500. Management classifies the
investment initially as at fair value thorough other comprehensive income.
c. During December, P6,400 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 P8,500 was
needed at December 31, 2019.
d. The company uses perpetual system. A year-end physical count revealed that several guitars reported in the
inventory were missing. The cost of the missing units amounted to P1,350. This amount is not considered
significant relative to the total cost of inventory on hand.
e. At December 31, approximately P900 in office supplies remained on hand.
f. The company pays for its insurance policies 12 months in advance. Its most recent payment was made on
November 1, 2019. The cost of this policy was slightly higher than the cost of coverage for the previous 12 months.
g. Depreciation expense related to the company’s building and fixtures is P5,000 for the month ending December 31,
2019.
h. 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 of custom-made guitars. Thus, all
customers must pay in advance for these special orders. The entire sales amount is collected at the time the
custom-order is placed, and is credited to an account entitled, “Unearned customer deposits.” As of December 31,
P4,800 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 in sales.
i. Accrued income taxes payable for the entire year ending December 31, 2019, total P81,000. No income tax
payments are due until early 2020.

Part 2 Individual Work (MC theory, google form, about PAS 1 and PAS 8 will be sent after due of Part 1.)