PLEASE PROVIDE THE ADJUSTING ENTRIES ONLY. Deviation from the requirements will be negatively rated!

You are a CPA student working in the accounting department of Strength Distributors Ltd. (SDL) for the year ended December 31, 2020. Your role requires you to prepare and analyze the annual financial statements of SDL and prepare a commentary on the performance and financial position of the company for the current year.

SDL is a wholesaler that purchases fitness equipment in Canada, the US and Europe. It distributes its inventory to gyms and fitness equipment retailers in Alberta and Saskatchewan. SDL was started by the Fillion family in 2012. Three members of the family, John, Nyla and Lucy, each own 30% of the common shares. Since its founding, the company has negotiated sales contracts with several major gyms and fitness center chains, as well as fitness equipment stores, in Alberta and Saskatchewan. Sales have increased steadily each year and the company appears quite profitable.

On January 2, 2019, the company expanded its operations by acquiring a state-of-the-art distribution warehouse in Balzac for $3 million. Previously, the company rented a small warehouse in Airdrie. The expansion was financed in part by issuing bonds totaling $2,000,000 par value to private investors on January 2nd, 2019. The bonds have a coupon rate of 6% and mature in 8 years. The investors expected rate of return for this business was 7%. Interest payments for the bond are made quarterly on January 1, April 1, July 1 and October 1 each year. The remaining $1,000,000 of the acquisition price was financed by issuing 50,000 5% non-cumulative convertible preferred shares to private investors also on January 2, 2019.

SDL needed additional funds in order to purchase new warehouse equipment and finance day-to-day operations. On July 1, 2020, SDL borrowed $500,000 from BCR Bank. This installment loan has a 2 year term and carries interest at 7%. The terms of the loan provide for quarterly fixed principal payments plus interest, commencing on October 1, 2020. The bank may demand payment of the loan in full if the current ratio falls below 2.4 to 1.

In early July 2020, the owners hired a new sales manager, Jackson West, to spearhead a sales drive into British Columbia (BC). As of December 31, 2020 he has been successful in adding $750,000 to the companys sales revenues from his work in BC. The sales target was $450,000 for the six months ended December 31, 2020 so management is very pleased with his performance. Jackson receives remuneration as follows: a monthly base salary; every three months he also receives a bonus of 10% of total sales in British Columbia for the quarter. He was paid $20,000 in October 2020 for July, August and September sales. As of December 31, 2020, Jackson had not yet received his bonus for October, November and December 2020 sales nor has it been accrued. Internal reports show that Alberta 2020 total sales and gross profit numbers were more or less identical to 2019. The gross profit margin for BC sales was 35% for the six months ended December 31, 2020.

The fourth family member, Tim Fillion, does not participate in the day-to-day running of the business and owns 10% of the common shares. In September, 2020, there was a disagreement among the four owners over the future direction of the company. Nyla felt that SDL should expand further, going into Manitoba in order to take advantage of economies of scale. John and Lucy disagreed, preferring to build on the business in Alberta, Saskatchewan and BC. To finance this expansion, they wanted to issue 10,000 new shares to an outside investor. The discussion got so heated that Tim decided to leave the business rather than take sides. He refused to sell his shares to an outsider and insisted that the company repurchase and cancel them. On 15 October 2020 he was paid $75,000 cash for his shares. This was recorded as

DR Tims Repurchased Shares Account $75,000

CR Cash $75,000

After a heated discussion about capital management, the 3 Directors declared the following dividends on December 24, 2020: common share dividend of $2.25 per share, to be paid January 5, 2021; full year preferred share dividend to be paid January 20, 2021. Nyla thought that they should not declare any dividends and keep the cash in the business for the proposed expansion. However John is planning a round the world trip and needs the cash. Lucy sided with John and the resolution passed. The shareholders have not yet given the dividend resolution to you to record.

The Income Statement, Balance Sheet and some brief ratio information for the 2019 financial year are provided in Exhibit 2 on pages 8-9. A soft copy of these statements has also been included in the posted excel file.

The unadjusted trial balance as at December 31, 2020 is provided on an Excel spreadsheet SDL Unadjusted Trial Balance.