Juniper Limited

Juniper Limited $($Juniper$)$ is a diversified Newfoundland based privately owned

company. According to the terms of a lending agreement Juniper has with Regal

Bank, Juniper's financial statements must be audited and prepared in accordance

with Accounting Standards for Private Enterprises $($ASPE$).$ Juniper's lending

agreement requires it to meet a variety of debt covenants, two of which are detailed

in the attached notes.

It is now January $15,2024.$ You are a CPA with the CPA firm of Alora and Harris

who will be completing the audit of Juniper for the year ended December $31,2023.$

Your current responsibilities are noted below.

For the issues below, you are to:

prepare any necessary December $31,2023$ adjusting journal entries.

explain why you recommend any changes.

calculate and comment on revised debt covenants that reflect your

recommended changes.

Be sure to present and label any necessary calculations. Explain any abbreviations

used.

Please answer in point form.

Notes from discussion with Juniper's bookkeeper:

Juniper has two debt covenants with its financial institution. Juniper's loan may

be called if its current ratio is less than $2\mathrm{.}5$ to $1.$ Juniper did not declare any

dividends in $2023,$ but is considering doing so in $2024.$ Another debt covenant

requires Juniper to get written consent from the bank before declaring dividends

to the company's shareholders if the company's pre$-$tax income for the $2023$ year$-$

end is less than $$50,000.$ The following information was obtained from Juniper's

draft December $31$ financial statements:

Juniper needs you to complete a detailed schedule of any adjustments to each

performance measure at December $31$ as a result of your recommendations and

to comment on the revised debt covenants.

Juniper offers a wide range of devices and accessories to help users who have

challenges with normal breathing due to underlying medical issues. Juniper carries

a few different continuous positive airway pressure $($CPAP$)$ devices that connect to

a hose and mask and improve air pressure in the client's throat. Juniper offers

quality products with no returns requested by customers.

One of Juniper's well$-$established customers, Birch Inc., placed an order in

December for CPAP devices, hoses and masks. Juniper captured the data below

related to Birch's order for a set of $12$ CPAP devices, hoses, and masks. Prices per

unit reflect the amounts charged to other Juniper customers throughout the past

year.

Because Birch is a long$-$time customer with a solid credit rating, Juniper priced the

contract at $$45,000$ instead of the full fair value of $$48,000.$ In December, Juniper

delivered $12$ CPAP machines to Birch with a plan to deliver the hoses and masks on

January $25.$ Juniper knows that compatible hoses and masks are available for

purchase through

Amazon.ca and some local retailers. If Birch wishes to get some

or all of the hoses and masks quickly, it can purchase them elsewhere and Juniper

will reduce the portion of the total contract price related to items that will not be

delivered. Therefore, upon delivery Birch can benefit from the CPAP machines, a

product with no past sales returns to Juniper. In the past, some of Juniper's

customers have purchased its CPAP machines and used those machines with

hoses and masks purchased from a different supplier.

Birch paid Juniper $$30,000$ in December and will pay the remaining balance when it

receives the hoses and masks from Juniper. The entries Juniper made in

December related to the Birch contract were:

In early January $2023,$ Juniper received $$8,000$ in government assistance

related to new equipment that was purchased. This amount does not need to be

repaid provided that the equipment is in operation for at least four years. All

indications are that the equipment will be used and government assistance

stipulations met for at least four years. The only entry related to the government

assistance was made in early January $2023$ :

Cash

$8,000$

Current liability $-$ deferred

government assistance

$8,000$

In early July, Juniper acquired land from Jones Inc. by giving Jones equipment

that Juniper had on its books at a net book value of $$70,000($cost of $$100,000$ less

accumulated depreciation $$30,000).$ The land was reported on Jones's balance

sheet at $$84,000.$ On the date of the trade, the land had a fair value of $$86,000,$ the

equipment had a fair value of $$75,000,$ and the equipment had a remaining useful

life of six years. Both fair values are reliable. Juniper recorded the trade as:

Land Dr$.75,000$

Accumulated depreciation Dr$.30,000$

Equipment Cr$.100,000$

Gain on trade Cr$.5,000$

End of Case