90.2K

Verified Solution

Link Copied!

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.

$1.)$ 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 $10\%.$

$2.)$ 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 loan covenant $($see point $1).$

How much dividends can the company pay?

Answer & Explanation Solved by verified expert

See Answer