case study

Assume the company follows ASPE, NOT IFRS

IGNORE JOHN’S REQUEST OF PROVIDING ADDITIONAL ADVICE REGARDING CONTROLS OR PROCEDURES THAT COULD BE IMPLEMENTED. YOU DO NOT NEED TO ADDRESS THIS.

You must prepare a report that analyzes the following issues (identify the issue, discuss the implications, offer alternative treatments, and provide a recommendation):

· Warranty provision

· Lease agreement (hint: review real estate leases in Chpt 20 Appendix A)

IGNORE FUTURE INCOME TAXES. ASSUME THAT INCOME TAXES PAYABLE AND PROVISION FOR INCOME TAXES ARE CORRECT AS CURRENTLY RECORDED.

Provide all necessary journal entries. There should not be any adjustments to your financial statements without a journal entry to support it.

Once you have analyzed these issues, prepare a revised balance sheet, income statement, and cash flow statement, all in proper form. (Hint: make sure current portions of long-term debt are presented separately)

Finally, address the big picture issues: are the debt covenants violated? Is the company able to pay a $35,000 dividend to John?