Both sides in order, with the ratio the bank reads, and why the owner cares about the split

The right-hand side, assembled

Everything Modules 6 and 12 built for Northlake Nordic Centre Inc. now lands on one page. At the end of year 3 the balances are: accounts payable 26,400; salaries payable 5,100; interest payable 2,750; HST payable 3,900; income tax payable 4,200; unearned revenue 52,500; dividends payable 30,000; current portion of bank loan 19,932.26; estimated lawsuit liability 20,000; bank loan, long-term 43,524.08; preferred shares 80,000; common shares 430,000; retained earnings 190,000.

Current liabilities
  Accounts payable                              26,400.00
  Salaries payable                               5,100.00
  Interest payable                               2,750.00
  HST payable                                    3,900.00
  Income tax payable                             4,200.00
  Dividends payable                             30,000.00
  Unearned revenue                              52,500.00
  Estimated lawsuit liability                   20,000.00
  Current portion of bank loan                  19,932.26
  Total current liabilities                    164,782.26
Long-term liabilities
  Bank loan payable                             43,524.08
Total liabilities                              208,306.34
Shareholders’ equity
  Preferred shares, 1,000 issued                80,000.00
  Common shares, 8,500 issued                  430,000.00
  Retained earnings                            190,000.00
  Total shareholders’ equity                   700,000.00
Total liabilities and shareholders’ equity     908,306.34

Current liabilities are listed roughly in the order they fall due — payables and accruals first, the loan instalment last — never largest first; ASPE s.1510 wants the government remittances (HST payable) and the current portion of long-term debt visible as their own lines. Long-term liabilities follow. Equity is share capital by class, then retained earnings.

The ratio the bank reads

$$\text{Debt-to-equity}=\frac{\text{Total liabilities}}{\text{Total shareholders’ equity}}=\frac{208,306.34}{700,000}=0.30$$

Thirty cents of debt for every dollar the owners have in the business — all liabilities, current and long-term, against all equity. The bank’s covenant on the groomer loan will name a ceiling (say 1.5), and this is the number it reads each year end. A ratio that uses current liabilities only, or long-term debt only, answers a different question; state the definition you use.

Declared is not paid

The 30,000 dividend declared on 15 December shows up in three places at 31 December — and is absent from a fourth. The statement of retained earnings deducts 30,000 declared (142,600 + 71,400 − 24,000 was year 3’s SRE in L11.1 with a different dividend; the mechanics are the same). The balance sheet carries Dividends Payable 30,000. The income statement shows nothing — a dividend is not an expense. And this year’s cash flow statement shows nothing either, because nothing was paid: the 30,000 will be a financing outflow next year, when the cheques go out. Declared and paid differ by exactly the change in Dividends Payable, and Module 13 will make you reconcile them.

Salary, dividends, retained earnings — the owner’s question

Northlake’s owner-manager works full time and can be paid three ways, and the accounting consequences differ. A salary is an expense — it reduces net income, sits in operating expenses, and is the cost of the management the business consumes. A dividend is a distribution of after-tax profit — it never touches net income, reduces retained earnings on the SRE, and is available only if retained earnings and cash both allow it. Profit retained stays as equity, building the base the bank’s debt-to-equity covenant reads, and is what finances the next snowcat without a loan.

The consequences for a reader are real. An owner who takes no salary and only dividends shows a net income that overstates what the business earns after paying for its management; the bank, comparing Northlake with a resort that pays a manager, sees an inflated operating result and an equity base that shrinks with every dividend. That is why a lender often prefers a salary on the books — the statements then show the true cost of running the business — and why the owner’s choice is a reporting question before it is anything else. (The personal-tax comparison between salary and dividends is a tax course’s topic, not this one’s, and not advice.)