Denmark Financial Ltd$.($DFL$)$ was incorporated and commenced operations on January $1,2024.$ Marielle Kenmare, the company's only employee, consults with various clients and uses expensive equipment to complete her work. When the company was formed, Marielle bought $10,000$ common shares but at the beginning of $2025,$ another,$1000$ common shares were sold to Marielle's mother.

In addition to selling shares, DFL received financing from Marielle's Uncle Harry in the form of a loan that was taken out on January $1,2024.$ Her uncle required the company to pay only the interest on the loan and no principal in $2024,$ which KAL did. However, he wanted both interest and a portion of the principal to be paid during $2025.$ These payments were made evenly throughout $2025.$ Harry was surprised when Marielle paid down more of the loan balance in $2025$ than he asked her to$.$

Denmark Financial Ltd$.($DFL$)$

Income Statement

Year ended December $31$

Year $2025$ Year $2024$

Service Revenue $$120,000$ $$100,000$

Salaries Expenses $74,00059,000$

Rent and Other Expense $20,00020,000$

Depreciation $12,00012,000$

Interest Expense $2,7003,600$

Earning before tax $11,3005,400$

Tax $3,3901,890$

Net Income after tax $7,9103,510$

Denmark Financial Ltd$.($DFL$)$

Statement of Financial Position

Year ended December $31$

Assets Year $2025$ Year $2024$

Cash $$9,000$ $$22,000$

Accounts Receivables $37,0009,000$

Total Current Assets $46,00031,000$

Equipment $84,00084,000$

Accumulated Depreciation $(24,000)(12,000)$

Net equipment $60,00072,000$

Total Assets $106,000103,000$

Liabilities

Accounts Payable $29,58014,490$

Current Portion of Loans Payable $4,0008,000$

Total Current Liabilities $33,58022,490$

Loan payable $26,00052,000$

Total Liabilities $59,58074,490$

Shareholder's Equity

Common Shares $35,00025,000$

Retained Earnings $11,4203,510$

Total Equity $46,42028,510$

Total of Liabilities and Equity $106,000103,000$

Instructions

Answer the following questions using the information above:

Calculate the current ratio for each year. Has the company's liquidity improved or deteriorated? $(4$ marks$)$

Calculate the debt to total assets ratio for each year. Did the company's solvency improve or deteriorate? What effect did the change in this ratio have on the statement of income? $(4$ marks$)$

Calculate the basic earnings per share $($EPS$)$ of the company for each year. Why do you think that basic EPS changed in $2025?(4$ marks$)$

When forming the company, how much did Marielle pay for her shares? How much did her mother pay for her shares? $(5$ marks$)$

At the end of $2024,$ what portion of the loan did Uncle Harry want paid off in $2025?$ How much of the loan did DFL actually pay off in $2025?$ What was the total amount of cash received by Harry in $2024$ and $2025?(5$ marks$)$