Olivia's Music Studio (OMS)

Olivia Lewis, a passionate pianist and teacher, has over 20 years of teaching experience. She started Olivia's Music Studio (OMS) on January 1, 2020. OMS, located in Toronto, ON, offers piano and music theory lessons and sells instrument accessories such as metronomes, adjustable benches, music stand lamps, and cleaning kits and tools.

After what Olivia feels was a successful first year, she is eager to see how the company has performed. The company's year-end is December 31.

She has asked you to create a set of financial statements, excluding the statement of cash flows, as she feels she has a good understanding of her cash spending as compared to her budget. Olivia will use these statements for her own use to assist with planning for the future of the company.

Exhibit 1includes an unadjusted trial balance at December 31, 2020.

Exhibit 2 includes information on 2020 transactions which require analysis and recording using Accounting Standards for Private e Enterprises (ASPE).

Required:

1. Prepare the journal entries for 2020, including any required year-end adjusting entries.

Provide an explanation of why each entry is required and how it was calculated. The company prepares annual l adjusting entries.

Prepare the classified Statement of Earnings, Statement of Retained Earnings, and Statement of Financial Position, for the period ended and as at December 31, 2020

Exhibit 1

Olivia's Music Studio (OMS)

Unadjusted Trial Balance, December 31, 2020

Account name Cash	Debit CAD$ 4,200	Credit CADS
Account Receivable	2,500
Supplies	2,600
Inventory - Benches	4,000
Inventory - Metronomes	2,000
Inventory - Lamps	500
Inventory - Cleaning Kits	2,275
Prepaid Insurance	2,700
Storefront Sign	3,000
Furniture & Fixtures	10 ,000
Computer Equipment	3,000
Accounts Payable		3,500
Contributed Capital		1,000
Retained Earnings (January 1, 2020)
Service Revenue		74,250
Sales Revenue		31,805
Cost of Sales	17,980
Rent Expense	14,400
Salaries Expense	38,400
Marketing Expense	3,000

Total $110,555 $110,555

Exhibit 2

Additional information

1. OMS uses a perpetual Inventory system. A breakdown of Inventory on hand at December

31, 2020:

	Quantity	Un t Cost	Total Cost	Net Realizable Value
Inventory Benches	20	$200	$4,000	$3,800
Inventory - Metronomes	40	$50	$2,000	$2,250
Inventory - lamps	25	$20	$500	$550
Inventory Cleaning kits	65	$35	52,275	$2.150

5. Olivia was ecstatic when the custom storefront sign arrived on April 1just in time to be put up before the store's official grand opening! She hopes that the sign will last for the next 15 years. Olivia sure had fun designing and setting up the store! The furniture and fixtures she invested in (all of which was incurred within the first couple days of January) are expected to last for the next 10 years. Olivia wanted to ensure that she could monitor the store's operations and her teaching schedule. As such, she invested in both a laptop and tablet. Everything was purchased on January 1, 2020 then she took advantage of so1ne Boxing Day sales prices. She expects that both the laptop and tablet would be valuable for the next 5 years where she would need to expect to upgrade.

Straight4 1ine method is used for all capital assets.

6. Olivia offers online piano and music theory lessons. Lessons are sold individually or in packages. An individual lesson sells for $100.Packages of 5 lessons sell for $450 and packages of 10 for $850.Customers must pay for the full amount before the lessons begin. All sales are done with cash and/or credit card and payment is assumed collectible upon sale. Cash received from the sales is deposited in the company's bank account at the end of each month. Bank reconciliations are prepared on an annual basis. There were 10 lesson packages sold in December, but the lessons will not take place until January 2021 due to the Christmas holidays. These were all 5-lesson packages and the customers paid in full and look forward to learning from Olivia. These lessons have been recognized as service revenue in December 2020, given it was the period in which cash was collected.