Question 1 (70 marks) Excellence Music Company Limited (Excellence") provides different musical courses to students and sells some small musical instruments and accessories. Excellence uses perpetual inventory system. The company adjusts its accounts monthly and prepares closing entries annually on 31 December. Below is its unadjusted trial balance on 31 December 2019: Credit ($) Debit ($) 171,700 9,000 2,460 1,710 112,300 432,000 Account Title Cash Accounts receivable Prepaid insurance Supplies Inventory Musical instruments Accumulated depreciation: musical instruments Accounts payable Income tax payable Unearned course fees Notes payable Share capital Retained earnings Courses fees earned Sales revenue Cost of goods sold Rent expense Salary expense Insurance expense Interest expense Depreciation expense Supplies expense Income tax expense 34,500 8,400 25,500 16,500 45,000 75,000 92,850 553,500 369,300 157,000 170,000 100,000 6,000 1,800 30,000 1,080 25,500 1,220,550 1,220,550 Information on adjusting entries: (1) Mary is one of Excellence's owners. On 31 December 2019, she bought a piano of $40,000 from Tomson Piano Company Limited for her son's private use. (2) Excellence's accountant advised that income tax expense for the entire year of 2019 was $23,000. The total amount will be due in April 2020. (3) Prepaid insurance represented a one-year insurance premium paid on 1 Feb 2019, with the coverage actually commenced on 1 April 2019. (4) On 1 May 2019, Excellence borrowed $45,000 by signing a note of 2 years. The interest rate was 6% per annum and should be paid on the last day of every 3 months. The accountant forgot to make the adjusting entries after the last payment made on 31 October 2019. (5) Supplies on hand on 31 December 2019 were $1,100. (6) Musical instruments were depreciated by straight-line method over an estimated useful life of 10 years. (7) A student had paid in advance a piano course fee of $3,000 in November and recorded. She had completed the related piano course during December but no record was made. (8) Excellence purchased ten metronomes with the cost of $180 each on credit from the supplier on 28 December and properly recorded. On 30 December, Excellence found that five of them were defective and returned them to the supplier, and sold two good ones to a student in cash at a gross profit rate of 60%. No entries were recorded for these two transactions made on 30 December. (9) A complete physical inventory taken as at 31 December 2019 indicates goods costing $1 10,500 remains in stock. Required: (a) Prepare the necessary adjusting journal entries on 31 December 2019 so as to bring the financial records of Excellence 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 name the accounting principle applied. (22 marks) (b) Prepare the income statement for the year ended 31 December 2019, showing the captions with figures of Gross Profit, Profit before taxes and Profit after taxes. (14 marks) Prepare the statement of financial position as at 31 December 2019, showing the captions with figures of Total assets, Total liabilities, Total equity, Total liabilities and equity. (20 marks) (d) Record its year end closing journal entries, no explanation is required. (14 marks)