Smart Kids Company ("Smart Kids") is a music learning centre which provides piano, violin, cello and other music lessons for children. Students have to pay Smart Kids in advance for the lessons and Smart Kids credits its "Unearned tuition fees" account. Adjusting entries are normally performed on a monthly basis. Closing entries are performed annually on 31 December 2022. Below is Smart Kids's unadjusted trial balance as at 31 December 2022. (c) Prepare the statement of financial position as of 31 December 2022, showing breakdown of items under the captions of Total Assets, Total Liabilities, Total Shareholders' Equity and Total Liabilities \& Shareholders' Equity. (20 marks) (d) Record its year-end closing journal entries. Explanations are NOT required. (16 marks) Question 2 (30 marks) Lily Company normally adjusts its books monthly. Below are some transactions in May 2023. (1) On 1 May 2023, the Company borrowed an eight-month 5\% bank loan of $120,000. The entire loan plus the accrued interest is due on 31 December 2023. None of the interest accrued is recorded. (2) On 31 May 2023, the Company billed customers $10,000 for the services rendered and the transaction is not recorded in the book. (3) On 31 May 2023, the Director of the Company recorded a dividend of $30,000 as an expense reported in the income statement. (4) On 1 May 2023, the Company purchased a \$50,000 equipment on credit and debited to "Marketing expense" by mistake. The equipment has a useful life of 50 months using straight-line method for depreciation. (5) On 31 May 2023, the Company paid $80,000 to purchase a car and recorded it as asset. The car is actually for the personal use of Lily (Company's owner). Required: Copy the table on your answer sheet. Transactions (1) to (5) above are independent events. Assume other than the entries mentioned in the question were recorded, no other adjusting entries were made by the end of May. Indicate the effects of such error have on the Company's book as at 31 May 2023, if any. State O= overstated (with $ amount), U= understated (with $ amount) and NE= no effect For example: There is a $500 accrued and unrecorded fees earned for the Company in May. If no adjusting entry is made in May, the effect on the book is: Information on adjusting entries: (1) Office supplies on hand at year end was $20,000. (2) Salaries earned by Smart Kids' employees that have not yet been recorded and paid amount to $15,000. (3) Records show that 80% of unearned tuition fees had been earned as of 31 December 2022. (4) On 1 September 2022, the Company paid medical insurance premium for its employees six months in advance. (5) The Company borrowed $120,000 by signing a 3-year notes payable with annual interest rate of 5% on 1 August 2022. Note interest is paid annually at 31 December. No entries were made for (i)the accrued interest of November and December and (ii) the payment of the interest for 2022. (6) The office equipment was bought on 1 March 2022 with useful life of 5 years and no residual value. The Company adopts straight-line method for depreciation. (7) On 1 December 2022, the Company signed 1-year rental agreement to rent a new office and paid $48,000 in advance. (8) On 31 December 2022, the Company declared and paid a dividend of $0.1 per share. No entry has been made. (9) $8,500 of the accounts receivable was collected on 30 December 2022. No entry has been recorded. (10) Estimated income taxes expense for the entire year totals $50,000. Taxes are due in the first quarter of the upcoming year. Required: (a) Prepare the necessary adjusting journal entries on 31 December 2022 to bring the financial records of Smart Kids Co. up-to-date. Use the account titles given in the Trial Balance or create new accounts where appropriate. Show your workings. Explanations are NOT required. (21 marks) (b) Prepare the income statement for the year ended 31 December 2022, showing breakdown of items under the captions of Revenues, Expenses, Profit before Taxes, Profit after Taxes. (13 marks)