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THE KENMARE CASE Kenmare Architects Ltd. (KAL) was incorporated and commenced operations on January 1, 2020. Sheila Kenmare, the company's only employee, consults with various clients and uses expensive equipment to complete her work. When the company was formed, Sheila bought 10,000 common shares but at the beginning of 2021, another 1,000 common shares were sold to Sheila's mother. In addition to selling shares, KAL received financing from Sheila's Uncle Harry in the form of a loan that was taken out on January 1, 2020. Her uncle required the company to pay only the interest on the loan and no principal in 2020, which KAL did. However, he wanted both interest and a portion of the principal to be paid during 2021. These payments were made evenly throughout 2021. Harry was surprised when Sheila paid down more of the loan balance in 2021 than he asked her to. The financial statements of the company for the past two years are presented below and on the next page. KENMARE ARCHITECTS LTD. Statement of Income Year Ended December 31 2021 2020 Service revenue $120,000 $100,000 Salaries expense 74,000 59,000 Rent and other office expenses 20,000 20,000 Depreciation expense 12,000 12,000 Interest expense 2,700 3,600 Income before income tax 1 1,300 5.400 Income tax 3,390 1,890 Net income $ 7.910 $ 3.510KENMARE ARCHITECTS LTD. Statement of Financial Position December 31 2021 2020 Cash $ 9,000 $ 22,000 Accounts receivable 37.000 9.000 46.000 31.000 Equipment 84,000 84,000 Accumulated depreciation (24.000) (12.000) 60,000 72,000 $106.000 $103.000 Accounts payable $ 29,580 $ 14,490 Current portion of loan payable 4,000 8,000 33,580 22,490 Loan payable 26,000 52,000 59,580 74.490 Common shares 35,000 25,000 Retained earnings 11,420 3,510 46.420 28.510 $106.000 $103.000. When forming the company, how much did Sheila pay for her shares? How much did her mother pay for her shares? . At the end of 2020, what portion of the loan did Uncle Harry want paid off in 2021? How much of the loan did KAL actually pay off in 2021? What was the total amount of cash received by Harry in 2020 and 2021? . Calculate the current ratio for each year. Has the company's liquidity improved or deteriorated? . Calculate the debt to total assets ratio for each year. Did the company's solvency improve or deteriorate? What effect did the change in this ratio have on the stateme nt of income? . Calculate the basic earnings per share of the company for each year. Why do you think that basic EPS changed in 2021? . Assume that the price Sheila paid for her shares was the share price throughout 2020. Using that price, calculate the priceearnings ratio for that year. Assume that the price Sheila's mother paid for her shares was the share price throughout 2021. Using that price, calculate the priceearnings ratio for 2021. Why do you think the PE ratio changed? Do you think that the share price change was justied? Why or why not? . What was the major reason for the company to sell shares in 2021