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Velvet Turtle Company purchases t-shirts from the suppliers and sells them through the Company's website. The Company adjusts its accounts monthly, closes its accounts annually on 31 December and adopts a periodic inventory system. The unadjusted trial balance of Velvet Turtle Company at 31 December 2019 was as follows: Velvet Turtle Company Unadjusted Trial Balance 31 December 2019 Debit Credit 676,325 115,475 39.750 105,000 1.800 130,000 T 3 Cash Accounts receivable Inventory (as at 1 January 2019) Prepaid insurance Office supplies Fixtures and equipment Accumulated depreciation: fixtures and equipment Accounts payable 6% Note payable SAT Salaries payable Unearned revenue Interest payable Income tax payableS Ordinary shares capital, $3 par value Retained earnings 1 Sales revenue 1 Sales returns and allowance Purchases S Supplies expense Rent expense Depreciation expense Interest expense Insurance expense Salaries expense Advertising expense Income tax expense Total 36,250 1 6.900 7 5.000 000 12,000 750 90,000 300.000 66,300 ,525.000 2 2 156,000 8 21,250 6.250 242,000 6 ,250 750 75.000 657.750 188,000 103.600 3.325,200 3 ,325,200 The following transactions/adjusting entries have not yet been recorded/adjusted as a 31 December 2019: (1) On 1 June 2019 Velvet Turtle pre-paid a one-year insurance policy, effective on 1 July 2019. (2) All salaries that Velvet Turtle owed to its staff were paid out on 31 December 2019. (3) In December 2019, the Velvet Turtle promotes its business by placing advertisement through a web platform. The advertising fee of $50,000 will be paid on 15 January 2020. (4) Velvet Turtle purchases supplies of $1,000 on account in December 2019. Office supplies on hand as at 31 December 2019 was $300. (5) Recently, a customer has serious skin allergy after wearing the t-shirts of Velvet Turtle and is suing Velvet Turtle for compensation of S500,000. Velvet Turtle's Lawyer regards the claim as remote and it is considered as the liability of the manufacturer. (6) On 31 December 2019, Velvet Turtle delivered $5,000 of t-shirts that were previously paid by the customer and recorded as unearned revenue. On the same day the Company received another $2,000 in advance for t-shirts to be delivered next month. On 1 October 2019, the Company borrowed $75,000 from Hungry Tiger Company by signing a six months' notes payable at 6% interest per annum. The entire note will be due for payment next March but interest were paid quarterly i.e. at the end of every three months. The payment has not yet been recorded (8) Velvet Turtle estimates that the income taxes expense for the entire year is $ 100,800. The amount will be due in March 2020. (9) Velvet Turtle uses straight-line depreciation method. Estimated useful life of the fixtures and equipment is 8 years and estimated residual value is $10,000. Depreciation expense of the fixtures and equipment is only adjusted up to the end of May. Required (a) Prepare the necessary journal entries to update the financial records of Velvet Turtle Company as of 31 December 2019. If any item above does not require adjusting entry, state "No entry" and short explanation is required (23 marks) (b) On 31 December 2019, closing inventory was determined at $48,500 by a year-end stock take. Prepare the Income Statement of Velvet Turtle Company showing the captions with figures of net sales, gross profit, profit before tax and profit after tax for the year ended 31 December 2019. (12 marks)

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