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QUESTION $1$

Blooming Haven Ltd$.($BHL$)$ is a company located in Kingston, Ontario. BHL is owned by two childhood friends, Sarah Logan and Mia O$$Neill$.$ They started the business in December $2021,$ focusing on sustainable gardening solutions and selling a variety of plants, trees, and eco$-$friendly garden supplies.

In May $2024,$ BHL$$s full$-$time accountant resigned. Since then, Sarah has been maintaining the books to the best of her limited accounting abilities. Below is the unadjusted trial balance for BHL at December $31,2024.$

Blooming Haven Ltd$.$

Trial balance

December $31,2024$

Account

Debit $($Dr$)$

Credit $($Cr$)$

Accounts Payable

$ $60,000$

Accounts Receivable

$ $70,000$

Accumulated Depreciation

$60,000$

Cash and Cash Equivalents

$50,000$

Common Stock

$100,000$

Cost of Goods Sold

$250,000$

General & Administrative Expenses

$50,000$

Intangible Assets

$40,000$

Inventory

$140,000$

Loan payable

$340,000$

Property, Plant & Equipment

$600,000$

Retained Earnings

$190,000$

Sales Revenue

$500,000$

Selling Expenses

$50,000$

Totals

$$1,250,000$

$$1,250,000$

You have recently joined BHL as accountant. You have been given some notes prepared by Sarah, which included in Appendix I. You have been asked to prepare an income statement for BHL for the financial year ended December $31,2024,$ in accordance with Accounting Standards for Private Enterprises, and its balance sheet as at that date. In addition, you have been requested to calculate some salient ratios to help assess BHL$$s profitability, liquidity, and solvency.

Appendix I

$1.$ BHL sells on terms $1/15,$ n$/30.$ Most of the accounts receivable are less than $30$ days outstanding, except for an amount of $$6,000$ owing from a customer who has not paid in over four months, despite repeated reminder calls. Sarah feels that the chances of collection are rather slim.

$2.$ Included in cash equivalents is an investment in the common shares of Robellus Corp at its acquisition cost. The shares were purchased in May $2024$ for $$15,000.$ The market value of these shares on December $31$ was $$17,000.$

$3.$ The accounts payable represent amounts owing to suppliers of goods and services. In the last week of December, the following invoices were received, but Sarah has not had the time to record them:

a$.$ A utilities bill for November $16$ to December $15,$ $$1,350.$ The bill for December $16$ to January $15,2025$ is expected to be for a similar amount.

b$.$ Bills for personal mobile phones and residential internet connections: Sarah, $$195,$ and Mia, $$225.$

$4.$ Included in inventory are the following items:

a$.$ Inventory on hand, physically count performed December $30,$ at cost$,$ $$120,000.$ These goods include a product line $($cost $$30,000)$ which is slow$-$moving. Sarah believes that it would have to be discounted for sale to $$20,000$ in early $2025.$

b$.$ Inventory being held on the request of the buyer, at cost$,$ $$20,000.$ The goods have been separated from the rest of the inventory, clearly identified and ready to be shipped as soon as the buyer requests. The selling price for these goods $($agreed to$,$ but not yet collected from the buyer$)$ is $$35,000.$

$5.$ BHL placed an order for goods from a supplier in Alberta for $$16,000.$ The terms are $2/10,$ n$/30,$ f$.$o$.$b$.$ shipping point. An email was sent by the supplier providing details of shipment made on December $23.$ These goods have not yet been received by December $31,$ and no journal entry has been recorded for this order.

$6.$ The note payable relates to a bank loan taken out on February $1,2024,$ from DTIC Bank. The loan carries an annual interest rate of $8\mathrm{.}5\%,$ with interest payable every February $1.$ Sarah has not recorded anything for the note since she took over the bookkeeping function. The terms of the loan allow for a maximum debt$-$equity ratio of $2$ times. If this is not met, the interest rate will be increased to $10\%.$

$7.$ BHL announced a sales commission of $3\%$ of gross sales, to be paid out in January $2025.$ Nothing has been recorded for this.

$8.$ The intangible asset was acquired on August $1,2024.$ It is expected to have a useful life of $5$ years.

$9.$ In June, Sarah discovered an error made in $2023.$ A purchase of $$25,000$ worth of goods was missed because the supplier had not sent their invoice until late in February, $2024.$ The previous accountant had filed away the invoice without recording anything. Unsure of what to do$,$ Sarah recorded the following journal entry:

DR Cost of Goods Sold $25,000$

CR Cash $25,000$

$10.$ BHL is subject to income tax at $16\mathrm{.}5\%.$

$11.$ Sarah and Mia would like to pay themselves the maximum amount of dividend possible $($rounded to the nearest $$000)$ while staying in line with the bank

Produce Income Statement and Balance Sheet

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