BHMH2101 2019/20 S2 Assignment ! Total Marks: 100 marks Question 1 (50 marks) Beauty Forever Company is engaged in providing medical beauty service including various treatment service and medical consultation service. Adjusting entries are performed on a monthly basis. Closing entries are performed annually on December 31. Below is the Company's unadjusted trial balance at the year ended December 31, 2019 Credits Debit S 228.800 440,200 72.000 13.000 240,000 Beauty Forever Company Unadjusted Trial Balance December 31, 2019 Account Title Cash Accounts receivable Prepaid rent Supplies Equipment Accumulated depreciation Equipmer Accounts payable Income taxes payable Unearned service revenue 6% Notes payable Due on March 31, 2020) Share capital (S4 per share) Retained eamings Service revenue Salaries expense Rent expense Insurance expense Depreciation expense Supplies expense Interest expense Income taxes expense 52.500 48,000 18.200 42.000 84.000 400.000 154.000 589,020 100,000 182,000 24,000 22.500 6,000 4.620 54.600 $1.387.720 $1,387,720 BHMH2101 2019/20 S2 Assignment 1 Information on adjusting entries: (1) Supplies on hand on 31 December 2019 were $7,500 (2) The $42,000 uneared service revenue was related to the prepaid packages for the beauty injection services. In December 2019, the doctors have performed beauty injection service amounted to $15,000 on customers who had paid in advance. (3) Equipment was depreciated by straight-line method over an estimated useful life of 8 years. Depreciation expense had been updated to end of September 2019. (4) Monthly interest on Notes Payable is due on the first day of next month. No entries had been made since last payment. (5) The Company had prepaid in advance a one-year office rental on 1 May 2019. On 31 December 2019, the Company signed an agreement of $120,000 with New Star Company to provide body slimming treatment for their artists starting from May 2020. (7) The accountant estimated that the total income tax expense for the entire year should be 565,700. The amount will be due in mid of April 2020. (8) On 31 December, 2019, the Company declared a dividend of $0.2 per share, which is payable on 31 March 2020 (9) Unrecorded and unpaid salary owed to staff in December amounted to $18,000. Required: Prepare the necessary adjusting journal entries on December 31, 2019 so as to bring the financial records of Beauty Forever Company up-to-date. Use the account titles given in the Trial Balance where appropriate Show your workings. Explanations are NOT required. If no adjusting entries are required state "No entry and same the accounting principle applied (18 marks) Prepare the income statement of the Company for the year ended December 31, 2019, showing breakdown of items under the captions of Revenues. Expenses, Profit before Tax Profit after Tax (11 mark) Prepare the statement of financial position as of December 31, 2019, showing breakdown o m der the captions of Total Assets, Total Liabilities. Total Shareholder's Equity and Total Liabilities & Shareholders' Equity (21 marks) Question 2 (50 marks) Part I (a) Briefly explain what is meant by the principle of adequate disclosure (2 mark) (6) Refer to Question 1 of Beauty Forever Company and assume the Company's financial statements were issued on March 31, 2020. State "Yes" or "No" whether situation (1) to (4) below require disclosure with the financial statements. If "Yes", identify the nature of disclosure. If "No" give the reason to support. The following events occurred in Beauty Forever Company (1) During the year 2019, the Company was sued by a customer for medical compensation of $80,000 for injury as a result of a laser hair removal treatment provided by the Company The hearing date is fixed on May 5. 2020. (2) The Company adopts straight-line method to calculate the depreciation expense for the equipment (3) Due to the outbreak of coronavirus disease starting from 19 January 2020, the Company has suspended its operation until the end of March to avoid the spread of disease (4) A customer is very satisfied with the botox injection procedure provided by the Company and paid $50 tips to the Company in addition to the service fee. (24 marks) Part II The following events occurred in Beauty Forever Company in January 2020: (1) A customer has purchased $8,100 ten whitening treatment vouchers for the service to be used in next few months. The total amount received was recorded as revenue by the company. (2) On 1 January 2020. Beauty Forever Company has purchased 1-year medical insurance policy for its staff amounting to $120,000. paid by cash The total amount was recorded as insurance expense (3) On 1 January 2020, the owner of Beauty Forever Company purchased a car of $30,000 in cash for his personal use but reported it as the Company's transaction The Company also recorded the monthly depreciation adjusting entry for the car with a useful life of 5 years on 31 January 2020 (4) On 31 January 2020, the accountant adjusted the balance of equipment to market value at $244,800 because of inflation and recorded a gain of $4,800 Required: For each of the situations describe above, (a) identify the relevant accounting principle that has been violated. (12 marks) (b) indicate the effect (with dollar amount of the above error on each of the financial statement elements at the end of January 2020 described in the column headings in the table below. Use the following symbols: O = overstated U n derstated and NE - no effect Tiabilities TU $1000 Equity (1) US1000 (12 marks) -END OF ASSIGNMENT I - BHMH2101 2019/20 S2 Assignment ! Total Marks: 100 marks Question 1 (50 marks) Beauty Forever Company is engaged in providing medical beauty service including various treatment service and medical consultation service. Adjusting entries are performed on a monthly basis. Closing entries are performed annually on December 31. Below is the Company's unadjusted trial balance at the year ended December 31, 2019 Credits Debit S 228.800 440,200 72.000 13.000 240,000 Beauty Forever Company Unadjusted Trial Balance December 31, 2019 Account Title Cash Accounts receivable Prepaid rent Supplies Equipment Accumulated depreciation Equipmer Accounts payable Income taxes payable Unearned service revenue 6% Notes payable Due on March 31, 2020) Share capital (S4 per share) Retained eamings Service revenue Salaries expense Rent expense Insurance expense Depreciation expense Supplies expense Interest expense Income taxes expense 52.500 48,000 18.200 42.000 84.000 400.000 154.000 589,020 100,000 182,000 24,000 22.500 6,000 4.620 54.600 $1.387.720 $1,387,720 BHMH2101 2019/20 S2 Assignment 1 Information on adjusting entries: (1) Supplies on hand on 31 December 2019 were $7,500 (2) The $42,000 uneared service revenue was related to the prepaid packages for the beauty injection services. In December 2019, the doctors have performed beauty injection service amounted to $15,000 on customers who had paid in advance. (3) Equipment was depreciated by straight-line method over an estimated useful life of 8 years. Depreciation expense had been updated to end of September 2019. (4) Monthly interest on Notes Payable is due on the first day of next month. No entries had been made since last payment. (5) The Company had prepaid in advance a one-year office rental on 1 May 2019. On 31 December 2019, the Company signed an agreement of $120,000 with New Star Company to provide body slimming treatment for their artists starting from May 2020. (7) The accountant estimated that the total income tax expense for the entire year should be 565,700. The amount will be due in mid of April 2020. (8) On 31 December, 2019, the Company declared a dividend of $0.2 per share, which is payable on 31 March 2020 (9) Unrecorded and unpaid salary owed to staff in December amounted to $18,000. Required: Prepare the necessary adjusting journal entries on December 31, 2019 so as to bring the financial records of Beauty Forever Company up-to-date. Use the account titles given in the Trial Balance where appropriate Show your workings. Explanations are NOT required. If no adjusting entries are required state "No entry and same the accounting principle applied (18 marks) Prepare the income statement of the Company for the year ended December 31, 2019, showing breakdown of items under the captions of Revenues. Expenses, Profit before Tax Profit after Tax (11 mark) Prepare the statement of financial position as of December 31, 2019, showing breakdown o m der the captions of Total Assets, Total Liabilities. Total Shareholder's Equity and Total Liabilities & Shareholders' Equity (21 marks) Question 2 (50 marks) Part I (a) Briefly explain what is meant by the principle of adequate disclosure (2 mark) (6) Refer to Question 1 of Beauty Forever Company and assume the Company's financial statements were issued on March 31, 2020. State "Yes" or "No" whether situation (1) to (4) below require disclosure with the financial statements. If "Yes", identify the nature of disclosure. If "No" give the reason to support. The following events occurred in Beauty Forever Company (1) During the year 2019, the Company was sued by a customer for medical compensation of $80,000 for injury as a result of a laser hair removal treatment provided by the Company The hearing date is fixed on May 5. 2020. (2) The Company adopts straight-line method to calculate the depreciation expense for the equipment (3) Due to the outbreak of coronavirus disease starting from 19 January 2020, the Company has suspended its operation until the end of March to avoid the spread of disease (4) A customer is very satisfied with the botox injection procedure provided by the Company and paid $50 tips to the Company in addition to the service fee. (24 marks) Part II The following events occurred in Beauty Forever Company in January 2020: (1) A customer has purchased $8,100 ten whitening treatment vouchers for the service to be used in next few months. The total amount received was recorded as revenue by the company. (2) On 1 January 2020. Beauty Forever Company has purchased 1-year medical insurance policy for its staff amounting to $120,000. paid by cash The total amount was recorded as insurance expense (3) On 1 January 2020, the owner of Beauty Forever Company purchased a car of $30,000 in cash for his personal use but reported it as the Company's transaction The Company also recorded the monthly depreciation adjusting entry for the car with a useful life of 5 years on 31 January 2020 (4) On 31 January 2020, the accountant adjusted the balance of equipment to market value at $244,800 because of inflation and recorded a gain of $4,800 Required: For each of the situations describe above, (a) identify the relevant accounting principle that has been violated. (12 marks) (b) indicate the effect (with dollar amount of the above error on each of the financial statement elements at the end of January 2020 described in the column headings in the table below. Use the following symbols: O = overstated U n derstated and NE - no effect Tiabilities TU $1000 Equity (1) US1000 (12 marks) -END OF ASSIGNMENT