Below is a balance sheet for Bullwinkle Enterprises (Bullwinkle or Company), the manufacturer of Rocket J Squirrel nut mixes. You understand that the Company is in violation of two specific financial statement covenants that reside in the debt that is shown on the balance sheet (note that there is only one debt instrument and it has a current and long-term component) as of the end of the year. The Company has been in intense negotiations with the debtholders about obtaining waivers for the specific covenants at the end of the year (December 31, 2022) and it has obtained these. The covenants, however, are measured every six months, and it is unlikely that the Company will be able to meet the covenants as of June 30, 2023.

Flag question: Question 1Question 110 pts

You are management. Are there any adjustments that need to be made to the financial statements before you issue your report on those financial statements? Please provide the journal entry (ies) you need to record and why or - if you don't believe a journal entry is necessary explain why that is the case.

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Flag question: Question 2Question 210 pts

You are management. Under the provisions of ASC 205-40 which of the following is NOT an indicator of substantial doubt at Bullwinkle.

Group of answer choices

The Company has a history of losses

The Company has violated its debt covenants

The Company may have access to additional financing it a high interest rate

The Company will likely have current liabilities in excess of current assets

Flag question: Question 3Question 310 pts

You are management. What factors you believe you could cite to mitigate the substantial doubt concerns? Which of the following is NOT a mitigation strategy that can be considered reasonable for purposes of assessing going concern.

Group of answer choices

The Company has the ability to sell its trademark at a substantial premium and has a written offer in hand.

The Company has secured a very large 5 year contract to supply nut mixes to all public schools in California and Texas. This will be very profitable.

The Company has demonstrated that it can access to additional long-term financing (albeit at a high interest rate) and has an irrevocable commitment letter from the lender.

The Company has certain private equity investors interested in potentially purchasing common stock.

\begin{tabular}{|c|c|} \hline Assets & \\ \hline \multicolumn{2}{|l|}{ Current assets } \\ \hline Cash & 2,400,000 \\ \hline Trade accounts receivable, net & 12,001,435 \\ \hline Unbilled receivables & 15,467,095 \\ \hline Inventory & 18,674,566 \\ \hline Prepaids and other current assets & 4,076,854 \\ \hline Total current assets & 52,619,950 \\ \hline Property and equipment, net & 55,003,406 \\ \hline Trademark & 30,500,000 \\ \hline Total Assets & 138,123,356 \\ \hline \multicolumn{2}{|l|}{ Liabilities and Shareholders' Equity } \\ \hline \multicolumn{2}{|l|}{ Current liabilties } \\ \hline Current portion of long-term debt & 5,900,000 \\ \hline Trade accounts payable & 6,016,789 \\ \hline Accrued expenses & 21,346,543 \\ \hline Deferred taxes & 450,000 \\ \hline Total current liabilities & 33,713,332 \\ \hline Long-term debt & 47,000,000 \\ \hline Total liabilities & 80,713,332 \\ \hline \multicolumn{2}{|l|}{ Shareholders' equity } \\ \hline Common stock & 1,000 \\ \hline APIC & 95,000,375 \\ \hline Accumulated deficit & (71,304,683) \\ \hline Total Liabilities and Shareholders' Equity & 138,123,356 \\ \hline \end{tabular}