Case: Northern Keflections Northern Reflections sells outdoor sporting equipment. You have been working for the company since its inception a few years ago and have been promoted to be their accounting manager. They use the perpetual inventory system and use the weigted average method to determine value for the inventory. The opening balances for the month of September are as follows: Northern Reflections Balance Sheet As at September 30, 2020 Assets Current Assets Cash $27, 200 Accounts Receivable 16,000 Merchandise Inventory 13.000 Total Current Assets 56, 200 Proptery, Plant & Equipment Equipment 130,000 Accumulated Depreciation -35.000 Total Assets 95.000 $151, 200 Liabilities Current Liabilities Accounts Payable Current Portion of Bank Loa Total Current Liabilities Non-Current Liabilities Non-Current Portion of Bank Loan Total Liabilities Shareholders' Equity Common Shares Retained Earnings Total Shareholders' Equity Total Liabilities & Equity $16, 200 6.000 $22, 200 18.000 $40, 200 50,000 61.000 111.000 $151, 200 The bank loan has an annual interest rate of 5% and has monthly principal payment of $500. The inventory figure includes 500 units purchased at $26.00 each. The Chart of Accounts (GL no.) is shown below: Account Description Account # Account Description Account # ASSETS REVENUE Cash 101 Sales Revenue 400 Petty Cash 105 Sales Discounts 405 Accounts Receivable. 110 Sales Returns and Allowance 410 Merchandise Inventory 120 Interest Revenue 420 Prepaid Insurance 125 EXPENSES Equipment 140 Cost of Goods Sold 500 Accumulated Depreciation 145 Employee Benefits Expense 510 LIABILITIES Depreciation Expense 515 Accounts Payable 200 Insurance Expense 520 Interest Payable 205 Interest Expense 525 CPP Payable 220 Office Supplies Expense 530 EI Payable 225 Rent Expense 535 Income Tax Payable 230 Salaries Expense 540 Salaries Payable 235 Bank Charges Expense 545 Unearned Revenue 240 Maintenance Expense 550 Bank Loan 245 Entertainment Expense 555 SHAREHOLDERS' EQUITY Common Shares 300 Retained Earnings 305 Transactions for the month of October: Oct 1 Oct 2 Oct 5 Bought inventory from Outdoor Muzi on account, invoice #5455; 900 units at $28 each. Terms of the purchase were 4/10, net 30. Update the inventory table after each purchase. Sold goods to Outback Kian, 600 units at $80 each with invoice #4741. The invoice terms were 5/10, net 30. Update the inventory table after each sale. Paid $1,100 with cheque #143 to Outdoor Muzi for an amount owing from last month. Bought inventory from Climb Foe with cheque #144, 650 units at $29 per unit. Oct 5 Oct 7 Returned 150 defective units to Climb Foe and received cash. Oct 8 Received $800 from Firewood Bill for a sale on account last month. Oct 10 Oct 31 Oct 31 Required: Outback Kian paid invoice #4741 on time and took advantage of the early payment discount. Prepared the payroll for October. Gross pay is $8,000, CPP is $408, El is $150 and income tax is $1,600. The employer matches CPP contributions and pays 1.4 times the El deduction. Use the general journal to record this. The cheque will be prepared later. Made monthly bank loan payment of $600 which includes $500 principal and $100 i) Record the transactions above in the general journal and then post amounts to the General Ledger. Note: Also remember to enter your posting references. 2) Prepare a calculation of retained earnings Calculation of Retained Earnings For the Month Ended October 31, 2020 3) Prepare a classified balance sheet. Assume that $6,000 of the bank loan will be paid off in the next year. Northern Reflections Balance Sheet As at October 31, 2020 v) Based on the information above, answer the following questions. a) Calculate the current ratio as at October 31, 2020 b) Does Norther Reflections have a good or bad current ratio? Explain why or why not. c) Calculate the inventory days on hand ratio as at October 31, 2020. (Since this is for the month, do not multiply by 365 in the formula. Instead multiply by 31 days.) d) Last month, the inventory days on hand ratio was 37 days. Has the ratio improved? Why or why not? e) Calculate the debt to equity ratio as at October 31, 2020. f) Calculate the gross profit margin as at October 31, 2020. g) Last month, the gross profit margin percentage was 75%. What could have caused this decrease in gross margin percentage? h) Calculate the inventory turnover as at October 31, 2020. 6 i) If inventory turnover last month was 0.837, is the company holding on to inventory for a longer or shorter period of time