TB Heavy Equipment Ltd. TB Heavy Equipment Ltd. (TBHE Ltd.), a private company based in Thunder Bay, Ontario, is Canada's largest heavy equipment dealer, such as tractors, grapple skidders, backhoes, etc. The company sells, rents, finances, and provides customer support for all the heavy equipment it finances. TBHE Ltd. is owned by Jan Deere, who provides strategic visions, while all accounting functions are the responsibility of Camillo Lento, the controller. Jan has determined that TBHE LTD. will expand into the United States next year. TBHE LTD. has been able to reduce its debt load over the years but still relies heavily on its creditors for continued support and growth. The bank has never asked for an audit in the past. Still, Jan recently met with the bank to make some routine changes to the banking agreement and was told TBHE LTD. would have to provide audited statements for the year ending December 31st,2023, given their expansion into the United States. The bank has also stipulated that TBHE LTD. must maintain a total debt-to-equity ratio of no more than 1 to 1 (i.e., for every $1 in equity, there should be no more than $1 in debt), where debt is defined as all liabilities, including payables and accruals. Sayed \& Partners LLP (S\&P) has been TBHE LTD.'s accountant for many years. It is now January 2024, and you are the senior accountant at S\&P responsible for TBHE LTD.'s year-end in the past. Jan has asked you to come in before year end to help Camillo establish accounting policies to ensure that TBHE LTD. follows ASPE. You meet with Jan and Camillo and note the following: 1. During the year, TBHE LTD. sold 2,000 small tractors for $2,600 each, including a one-year warranty. Maintenance on each machine during the warranty period averages $380. During the year, actual warranty costs incurred were $180,000. They currently are using the cash basis to record the warranty expense. The warranty is assumed to be an assurance-type warranty. 2. On October 1st,2023, the provincial environment ministry identified TBHE LTD. as a potentially responsible party in a chemical spill in their Kenora warehouse. Management, along with legal counsel, has concluded that it is likely that they will be liable for damages, and a reasonable range of these damages is $500,000 to $750,000. TBHE LTD.'s insurance policy of $1 million has a deductible clause of $250,000. Management has yet to record this transaction in the books. 3. The company purchased a new piece of machinery on January 1st,2023. The purchase was financed through an "interest-free" five-year loan, requiring them to pay back $500,000 yearly. Management recorded the asset and liability at $2,500,000. Management was excited about this promotion as the interest rate normally charged on a similar loan would have been 9%. TBHE LTD. uses the straight-line method to amortize the asset with a seven-year useful life. 4. On January 1st,2022, TBHE LTD. constructed a warehouse on property it leased for five years. TBHE LTD. will be required to remove the warehouse and restore the property to its original condition at the end of the lease term. Inflation-adjusted costs of removing the warehouse and restoring the property are estimated to be $200,000. In 2022 , management recorded a liability for $200,000 in the books. No additional entries have been made. 5. On January 1st,2023, TBHE LTD. issued 30,000 redeemable and retractable preferred shares at $10 per share. The shares are redeemable by TBHE LTD. at any time after January 2023 . The shares are retractable for $10 per share up to January 2023 , after which the retractable feature expires. The preferred shares require the payment of a mandatory dividend of $2 per share during the retraction period. Afterward, the dividends become non-cumulative and nonmandatory (i.e., paid at the board's discretion). TBHE LTD.'s balance sheet reveals that the corporation has $1,600,000 in debt and $2,850,000 in equity. Since equity is greater than debt by $1,250,000, Jan stated that she plans to pay an $800,000 dividend on her common shares, which "will still allow the debt-to-equity ratio covenant (1:1) to be maintained". TBHE LTD.'s credit-adjusted risk-free rate is 8%. Required Provide a report to Jan and Camillo outlining your recommendation on accounting policies and other important issues