P5-5 Lydia Trottier has prepared baked goods for sale since 2001. She started the baking business in her home and has been operating in a rented building with a storefront since 2006. Lydia incorporated the busines MLT Inc. on January 1, 2023, with an initial share issue of 1,000 common shares for $2,500. Lydia is the principal shareholder of MLT Inc. Sales have increased by 30% annually since operations began at the present location, and additional equipment is needed for the continued growth that is expected. Lydia wants to purchase some additional baking equipment and to finance the equipment through a long-term note from a commercial bank. Fidelity Bank & Trust has asked Lydia to submit a statement of income for MLT for the first five months of 2023 and a statement of financial position as at May 31, 2023. Lydia assembled the following information from the corporation's cash basis records to use in preparing the financial statements that the bank wants to see: 1. The bank statement showed the following 2023 deposits through May 31: Issuance of common shares Cash sales Rebates from purchases of raw materials Collections on credit sales Bank loan proceeds 2. The following amounts were disbursed through May 31, 2023: Raw materials Rent Salaries and wages Repairs and maintenance Utilities Insurance premium Equipment Principal and interest payment on bank loan Advertising 3. Unpaid invoices at May 31, 2023, were as follows: Raw materials Utilities $ 2,500 22,770 130 5.320 2,880 $33,600 7. Employees have been paid through May 25, 2023, and are due an additional $270 on May 31, 2023. 8. Equipment costing $3,600 was purchased on January 2, 2023, and has an estimated useful life of five years with no residual value. Straight-line depreciation is used. 9. Rent was paid for six months in advance on January 2, 2023. $14,400 1,800 5.500 110 4,000 1,920 3,600 298 424 $32,052 $256 270 $526 4. Accounts receivable records showed uncollected sales of $4,336 at May 31, 2023. 5. Raw materials inventory costing $2,075 was on hand at May 31, 2023. There were no materials in process or finished goods on hand at that date. No raw materials were on hand or in process and no finished goods were on hand at January 1, 2023. 6. The note for the three-year bank loan is dated January 1, 2023, and states a simple interest rate of 8%. The loan requires quarterly payments on April 1, July 1, October 1, and January 1. Each payment is to consist of equal principal payments [$2,880 + (3 4) = $240] plus accrued interest since the last payment. 10. A one-year insurance policy was purchased on January 2, 2023. 11. MLT is subject to an income tax rate of 20%. No tax instalments have been paid. 12. Payments and collections from the unincorporated business through December 31, 2022, were not included in the corporation's records, and no cash was transferred from the unincorporated business to the corporation. Instructions a. Using the accrual basis of accounting, prepare a statement of income for the five months ended May 31, 2023. b. Using the accrual basis, prepare a statement of financial position as at May 31, 2023. c. Digging Deeper Finance Assume the role of a bank manager at Fidelity Bank & Trust. Based only on MLT's current ratio as a measure of liquidity, and times interest earned ratio as a measure of MLT's ability to pay interest, would you recommend extending a long-term note for financing of MLT's purchase of additional baking equipment?

wentnen shares foe 52.500 . Hydia is the principal altartholder of MILT Ior. 1.ydia asembled the following information frem the eorporatian's caah basis recorda to ve in perpuring the finandial atatements that the bank wasts to ase: 1. The bank utatement showed the following 2023 deposits thruughl May 3 . lswanee of coentnon shares. Cash rabies 12.300 Rebales from whinchase of raw maiesiale +2.7T0 4. Aecounts necivalie recorda glonnd uncollected sales of s4336 at May 31, 2023were on hand of 7 amuary 1, a0dy. equal priodipel paymients [52,860+(34)=5240] plus acerued interat wiece the last payment. 7. Imployers have been pald through Mtay as, 2003. and are due an additional 3230 on May 34, 20a3. 2. Hent was paid for alx months in advance on January 2,2023 . 10. A one-yvar insurance policy was puechased on Jhatoary a, 2023. 11. MtT is aubject te an income tax rate of 20k. We tax instalmetats have been puid. corpecatioe Instractions 1. U1ing the acenal besis of acoounting prrpare a statement of incume for the five monchr ended Map-31, 2023. b. Ualigg the accral baris, propare a statement of finanelal ponition ai at May 34,2023