Olivia's Music Studio (OMS)

Olivia Lewis, a passionate pianist and teacher, has over 20 years of teaching experience. She started Olivia's Music Studio (OMS) on January 1, 2020. OMS, located in Toronto, ON, offers piano and music theory lessons and sells instrument accessories such as metronomes, adjustable benches, music stand lamps, and cleaning kits and tools.

After what Olivia feels was a successful first year, she is eager to see how the company has performed. The company's year-end is December 31.

She has asked you to create a set of financial statements, excluding the statement of cash flows, as she feels she has a good understanding of her cash spending as compared to her budget. Olivia will use these statements for her own use to assist with planning for the future of the company.

Exhibit 1includes an unadjusted trial balance at December 31, 2020.

Exhibit 2 includes information on 2020 transactions which require analysis and recording using Accounting Standards for Private e Enterprises (ASPE).

Required:

1. Prepare the journal entries for 2020, including any required year-end adjusting entries.

Provide an explanation of why each entry is required and how it was calculated. The company prepares annual l adjusting entries.

Prepare the classified Statement of Earnings, Statement of Retained Earnings, and Statement of Financial Position, for the period ended and as at December 31, 2020

Exhibit 1

Olivia's Music Studio (OMS)

Unadjusted Trial Balance, December 31, 2020

Account name Cash	Debit CAD$ 4,200	Credit CADS
Account Receivable	2,500
Supplies	2,600
Inventory - Benches	4,000
Inventory - Metronomes	2,000
Inventory - Lamps	500
Inventory - Cleaning Kits	2,275
Prepaid Insurance	2,700
Storefront Sign	3,000
Furniture & Fixtures	10 ,000
Computer Equipment	3,000
Accounts Payable		3,500
Contributed Capital		1,000
Retained Earnings (January 1, 2020)
Service Revenue		74,250
Sales Revenue		31,805
Cost of Sales	17,980
Rent Expense	14,400
Salaries Expense	38,400
Marketing Expense	3,000

Total $110,555 $110,555

Exhibit 2

Additional information

1. OMS uses a perpetual Inventory system. A breakdown of Inventory on hand at December

31, 2020:

	Quantity	Un t Cost	Total Cost	Net Realizable Value
Inventory Benches	20	$200	$4,000	$3,800
Inventory - Metronomes	40	$50	$2,000	$2,250
Inventory - lamps	25	$20	$500	$550
Inventory Cleaning kits	65	$35	52,275	$2.150

1. The following Information regarding payroll needs to be considered in preparing year-end

Financial statements {Ignore payroll taxes):

Employee	Pay rate	Pay frequency
Olivia Lewis	Annual 84,000	15th of the month (for prior month)

2. OMS Is subject to income tax and the tax rate is 30%.

3. Olivia hired a payroll clerk, who is a very hard worker and did not take vacation in 2020. Employees do not typically report payroll errors, so Olivia does not need to monitor the payroll clerk closely.

(Take any depreciation to answer these questions)