Total Marks: 100 marks Question 1 (70 marks) Soprano Limited provides musical performance for customers in different events. The Company also holds music concerts regularly. Tickets must be purchased and paid in advance. 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 31 December 2020. Soprano Limited Unadjusted Trial Balance 31 December 2020 Account Title Debits Credits Cash 251,000 Performance fee receivable 210,300 Prepaid rent 24,000 Supplies 3,700 Musical Instruments 189,000 Accumulated depreciation: Musical Instruments 63,000 Accounts payable 37,500 6% Notes payable 50,000 Interest payable 1,500 Unearned ticket revenue 70,000 Income taxes payable 11,500 Share capital (S4 per share) 225,000 Retained earnings 102,050 Performance revenue earned 568,000 Ticket revenue earned 149,000 Salaries expense 314,500 Insurance expense 31,500 Concert promotion expense 122.000 Rent expense 77.000 Depreciation expense : Musical Instruments 24,750 Supplies expense 1.800 Interest expense 1,500 Travelling expense 4,800 Income taxes expense 21,700 $1,277,550 $1,277,550 Information on adjusting entries: (1) The Company borrowed $50,000 by signing a 10-month notes payable with annual interest rate of 6% on 1 June 2020. The principal and the total accrued interest will be due on 31 March 2021. (2) On 1 October 2020, the Company has paid in advance for renting a practice room in Hong Kong Cultural Centre for four months from 1 October 2020 to 31 January 2021. No adjusting entries has been made for November and December 2020. (3) On 1 November 2020, 150 tickets of $200 each were sold for cash for the string orchestra concerts held on 31 December 2020. The entire amount was initially recorded as unearned ticket revenue. The concert was held successfully. (4) The Company began providing music performance for Relax hotel at the lobby every day starting from 15 December 2020 to 14 December 2021, both days inclusive, for an agreed daily fee of $3,000. The payment is settled on 14th of every month and the first payment is to be received on 14 January 2021. (5) On 31 December 2020, the Company has invited a pianist to perform in a piano concert to be held on 14 February 2021. A salary of S12,000 will be paid to the pianist after the performance, (6) During December 2020, the Company purchased additional supplies costing $5,000 in cash and no entry has been made. There are $2,500 unused supplies remain on hand on 31 December 2020. (7) Musical instruments were depreciated by straight-line method over an estimated useful life of 7 years with no residual value. (8) There was an unrecorded and unpaid salary of $15,000 earned by a musician for December 2020. (9) The accountant estimates that the total income taxes expense for the entire year should be $30,700. The amount will be due in mid of April 2021. (10) On 31 December 2020, the Company declared a dividend of $2 per share and half of the amount was paid on the same day. The remaining balance will be paid on 31 March 2021. No entries were recorded. Required: (a) Prepare the necessary adjusting journal entries on 31 December 2020 to bring the financial records of Soprano Limited 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. If no adjusting entries are required, state "No entry" and name the accounting principle applied (23 marks) (b) Prepare the income statement for the year ended 31 December 2020, showing breakdown of items under the captions of Revenues, Expenses, Profit before Taxes, Profit after Taxes. (14 marks) (c) Prepare the statement of financial position as of 31 December 2020, showing breakdown of items under the captions of Total Assets, Total Liabilities, Total Shareholders' Equity and Total Liabilities & Shareholders' Equity. (21 marks) (d) Record its year-end closing journal entries. Explanations are NOT required. (12 marks) Question 2 (30 marks) Flamingo Limited is a dancing school providing a wide variety of dance classes for all ages. The financial statements are prepared annually on 31 December. The Company's 2020 financial statements were issued on 31 March 2021. A new accounting clerk, May was hired by Flamingo Limited on 1 January 2020. When the accountant, Yan, reviewed the financial statements prepared by May, she discovered the following improper accounting treatments. (1) The Company provides ballet dance classes for a primary school in January 2021. The tuition fee is $32,000 and the whole amount was received on 30 December 2020. May recorded the total amount received as revenue earned on 30 December 2020. (2) The Company did not report a legal case filed against the Company for possible infringement of copyright for $200,000 during the year in the notes to the financial statements. The hearing date is fixed on June 1, 2021. (3) On 31 December, 2020, the Company purchased a van at cost of $200.000. The list price of the van was $250,000. May has recorded the van at the value of $250,000 and a gain of S50,000 was included in the income statement. (4) The Owner of the Company has employed a web designer to design a personal website for him. May included the web designer's salary of S70,000 in the income statement of the Company. (5) On 1 January 2020, the Company purchased an audio equipment with cost of $ 300,000. May recorded it as an asset and made no depreciation adjustment as she found that the audio equipment is still in a very good condition at 31 December 2020. (Note: The fixed assets of the Company were depreciated by straight-line method over an estimated useful life of 5 years.) (6) On 1 January 2020, a calculator costing S120 was purchased for office use. May recorded the cost of calculator as asset and depreciated by straight-line method with the estimated useful life of 5 years. Required: For each of the situations describe above, (a) identify the relevant accounting principle/concept that has been violated/departed. (12 marks) (b) indicate the effect (with dollar amount) of the above improper accounting treatments on each of the income statement items for the year ended 31 December 2020 described in the column headings in the table below. Use the following symbols: 0 = overstated, U understated and NE = no effect. Revenue U $1000 Expense Profit NE U$1000 e.g. (1) (18 marks) END OF ASSIGNMENT 1