Question 1 (25 marks) Always Fit Company is engaged in providing group fitness classes in a studio. Customers are required to purchase group classes coupons in advance. Coupons are redeemed when customers attend fitness classes. Adjusting entries are performed on a monthly basis. Closing entries are performed annually on December 31. Below is the Companys unadjusted trial balance at the year ended December 31, 2018. Always Fit Company Unadjusted Trial Balance December 31, 2018 Account Title Debit $ Credit $ Cash 114,400 Accounts receivable 220,100 Unexpired insurance 36,000 Supplies 6,500 Equipment 120,000 Accumulated depreciation: Equipment 21,200 Accounts payable 24,000 Income taxes payable 9,100 Unearned revenue 21,000 8% Notes payable 42,000 Share capital (100,000 shares) 200,000 Retained earnings 77,000 Services revenue 304,000 Wages expense 50,000 Rent expense 91,000 Insurance expense 12,000 Depreciation expense 18,000 Supplies expense 3,000 Income taxes expense 27,300 $698,300 $698,300 Information on adjusting entries: (1) The estimated useful life of equipment is five years and straight-line depreciation method is adopted. Depreciation expense had been updated to end of September 2018. (2) Accrued, but unrecorded and unpaid wages amounted to $7,000. (3) On November 1, 2018, the company borrowed $42,000 from its owner by signing 9-month note at 8% interest rate per annum. The monthly interests were paid by the company at the end of the next months. No entries had been made after recording the note. (4) Physical count shows supplies on hand were $6,000 on December 31, 2018. (5) On August 1, 2018, the company prepaid a 12-month insurance policy, which was effective on September 1, 2018. (6) On December 31, 2018, the Company declared a cash dividend of $0.10 per share to be paid in the following year. (7) Group class coupons amounting $8,000 were redeemed in December, 2018. (8) The Company estimated that the income taxes expense for the entire year was $30,300, which to be paid next year. (9) Unrecorded and unpaid fuel expenses of the owners private vehicle amounted to $2,000. Required: (a) Prepare the necessary adjusting journal entries on December 31, 2018 so as to bring the financial records of Always Fit Company up-to-date. Workings are required, but explanations are NOT required. If no adjusting entries are required, state No entry and name the accounting principle applied. (9 marks) (b) Prepare the income statement of the Company for the year ended December 31, 2018, showing breakdown of items under the captions of Total Revenues, Total Expenses, Profit before Tax, Profit after Tax. (5 marks) (c) Prepare the statement of financial position as of December 31, 2018, showing breakdown of items under the captions of Total Assets, Total Liabilities, Total Shareholders Equity and Total Liabilities & Shareholders Equity. (11 marks)