On Nov 1 2019 an additional 500,000 of long term loan was taken out to help finance the purchase of certain manufacturing equipment for $600,000 ( the additional 100,000 was paid in cash) Given this new loan and the revised debt load they must now maintain a maximum D/E ratio of 3:1 and its financial statements must comply with ASPE. If they breach the covenant the bank has the ability to call the loan in full.

The manufacturing equipment that was purchased during the year will be depreciated over 10 years. It is classified as class 39 and has a CCA rate of 25%. Business is taxed at the highest possible rate of 45% and the half-year rule applies. The business has not taken any consideration for potential tax consequences on the equipment purchase.

Please provide adjustments and calculations.

Assets
Current assets
	2020	2019
Cash	$ 35,000	$ 20,000
Accounts receivable	13,000	10,000
Inventory	20,000	12,000
Prepaids	3,000	3,000
Total current assets	71,000	45,000
Property, plant, and equipment (net)	2,800,000	2,200,000
Total assets	2,871,000	2,245,000
Liabilities
Current liabilities
Accounts payable	25,000	20,000
Notes payable	13,000	25,000
Current portion of long-term debt	150,000	50,000
	188,000	95,000
Long-term debt	1,800,000	1,450,000
Total liabilities	1,988,000	1,545,000
Shareholders equity
Share capital	100	100
Preferred shares	100,000	100,000
Retained earnings	782,900	599,900
Total equity	883,000	700,000
Total liabilities and shareholders equity	$2,871,000	$2,245,000
Debt to equity	2.67	2.21