Reference no: EM133009820
Virtual Yoga is a company started by Arun in 1 January 2020 during the COVID pandemic. It conducts various live stream courses on yoga. Its revenue is derived from fees paid by students on a quarterly or semi-annually basis. It also conducts classes for employees of companies.
Recently, its accountant has contracted COVID and was hospitalised. You are being asked to help to finalise drawing up the Trial Balance as of 31 December 2021.
Account title
Share capital ($80,000 shares at $1.00 each) Cr 80,000
Retained earnings, 31 Dec 2020 Cr 19,750
Training equipment at cost Dr 20,000
Furniture and fittings at cost Dr 20,000
Accumulated depreciation, 31 Dec 2020
Training equipment Cr 2,000
Furniture and fittings Cr 5,000
Prepaid insurance Dr 5,200
Rental expense Dr 60,000
Insurance expense Dr 5,400
Membership fee received Cr 141,690
General expenses Dr 4,072
Wages and salaries Dr 39,880
Equipment maintenance expense Dr 6,100
Interest and bank charges Dr 88
Allowance for doubtful debts Dr 156
Accounts receivable Dr 6,000
Accounts payable Cr 4,500
Bank Dr 86,044
Dr = 252,940
Cr = 252,940
The following additional information all of which is considered material and (unless stated otherwise) none of which has been taken into consideration in arriving at the figures shown in the trial balance above is listed below:
- On 1 October 2021, Arun sold a training equipment costing $1,600, with accumulated depreciation of $150 as at 31 Dec 2020 for cash of $600. Arun deposited the cash into his personal bank account. Arun has also forgotten to inform his accountant of this transaction.
- Both the cost and the accumulated depreciation of the training equipment sold were included in the amount shown for training equipment at cost and the accumulated depreciation for training equipment in the unadjusted trial balance above. The residual value of the training equipment was originally estimated to be $100.
- The prepaid insurance relates to the 12-month insurance paid in advance. As at 31 Dec 2021, three months have expired.
- As at 31 Dec 2021, the salaries payable to employees were $1,200.
No depreciation has been charged for the year ended 31 Dec 2021. During the year, no additional non-current assets were purchased. The company depreciates non-current assets held at 31 Dec 2021 as follows:
- Training equipment at cost - straight line over five years. The residual value of the training equipment held at 1 January 2021 was estimated to be $2,000.
- Furniture and fittings - declining-balance depreciation method assuming a useful life of four years.
- On 31 December, the amount of membership fees paid in advance by private members and corporate members were $5,125. However, these have been included in membership fees received in the unadjusted Trial Balance.
It was estimated that 5% of outstanding accounts receivable on 31 December were uncollectible.
- The bank statement received from its banker, the Public Bank Corporation, reveals that the bank service charge of $100 for December was also not recorded by the company.
Required:
Problem a. Analyse the above information and prepare all necessary adjusting entries. Show narrations and all workings.
Problem b. Present the following after taking into consideration all the adjustments in (a):
(i) The net profit for the year ending 31 December 2021.
(ii) The total assets as at 31 December 2021.
(iii) The total liabilities as at 31 December 2021.
(iv) The total equity as at 31 December 2021.