Current Attempt in Progress Linda Bonita established Bonita Ltd. in mid-2022 as the sole shareholder. The accounts on June 30, 2023, the company's year end, just prior to preparing the required adjusting entries, were as follows: Current assets Capital assets Land Building Equipment Current liabilities Long-term bank loan Common shares Net income prior to depreciation $100,000 $41,000 89,000 50,000 180,000 41,000 120,000 89,000 30,000 All the capital assets were acquired and put into operation in early July 2022. Estimates and usage information on these assets were as follows: Building: 25-year life, $15,000 residual value Equipment: Five-year life, 15,000 hours of use, $5,000 residual value. The equipment was used for 1,000 hours in 2022 and 1,400 hours in 2023 up to June 30. Linda is now considering which depreciation method or methods would be appropriate. She has narrowed the choices down for the building to the straight-line or double-declining-balance method, and for the equipment to the straight-line, double-declining-balance, or activity method. She has requested your advice and recommendation. In discussions with her, the following concerns were raised: 1. The company acquires goods from suppliers with terms of 2/10, n/30. The suppliers have indicated that these terms will continue as long as the current ratio does not fall below 2 to 1. If the ratio falls lower, no purchase discounts will be given. 2. 3. 4. The bank will continue the loan from year to year as long as the ratio of long-term debt to total assets does not exceed 46%. Linda has contracted with the company's manager to pay him a bonus equal to 50% of any net income in excess of $14,000. She prefers to minimize or pay no bonus as long as conditions of agreements with suppliers and the bank can be met. To provide a strong signal to attract potential investors to join her in the company, Linda believes that a rate of return on total assets of at least 5% must be achieved. (a) Prepare a report for Linda that (1) presents tables, (2) analyzes the situation, (3) provides a recommendation on which method or methods should be used, and (4) justifies your recommendation by considering her concerns and the requirement that the method(s) used be considered generally acceptable accounting principles. (Round ratio and percentage answers to 1 decimal place, e.g. 52.7 or 52.7% and all other answers to O decimal places, e.g. 527.) Building: Double- Declining Method DDB: SL: Equipment: DDB: SL: UOP: (1) Straight- Line Method (2) Activity Method (3) (4) (5) UOP: (5) Method Combinations Depreciation Buildings Depreciation Equipment Total Net Expense Incor $ $ 1 and 3 1 and 4 1 and 5 2 and 3 2 and 4 2 and 5 $ Net Income Total Current Assets Ratio Long-term debt to total assets $ % % % % % % Total Current Assets Ratio Long-term debt to total assets Net increase on total assets $ % % % % % % % % % % % % 1. Current ratio greater than 2. 2. Long-term debt to total asset ratio less than 46%. 3. Net income less than $14,000. 4. Rate of return on total assets of at least 5% is achieved in the following combinations: method(s) examined are permitted under both ASPE and IFRS.