FastTrack Service (FTS) is a company that services transport trucks and sells parts. The company operates in Alberta and is owned by Albert Whitsby. Albert is a successful businessperson and also a part owner of FastTrack Movers (FTM), which is a moving company. The corporate structure is as follows:

In January 2017, FTS received a loan from a major bank to help finance an expansion of operations. The bank requires audited financial statements to be prepared and also prohibits the debt to equity ratio to exceed 2:1. Your firm has recently been engaged to complete the December 31, 2017, audit. As the audit senior, you recently met with Albert, who said that FTS will adopt ASPE. You also discover the following information:
1.
FTS constructed a storage shed on land it leased for a five-year period on January 1, 2017. Th e company is required to remove the storage shed and restore the property to its original condition at the end of the lease term. The costs of removing the storage shed and restoring the property, at the end of the lease term, are estimated to be $200,000. FTS’s credit-adjusted risk-free rate is 8%.
2.
FTS completed construction of a new plant in Edmonton in November 2017. The cost of the plant was $1.2 million. The federal government provided a grant of $200,000 to aid in construction costs. It also announced a forgivable loan of $400,000 to be paid in installments of $100,000 per year, to offset wages paid. The loan must be repaid in its entirety if the business is sold or wound up within four years. Th e fi rst installment was received in January 2018, just a few days after the year end of December 31, 2017.
3.
During the year, FTS exchanged a parcel of land for a storage warehouse and $50,000 cash with FTM. The parcel of land had a carrying value of $150,000, and a fair value of $250,000. Th e storage warehouse received by FTS was being carried in FTM’s books of account at $75,000, and has a fair value of $200,000. FTS has recorded a gain of $100,000 on the exchange.
4.
On January 1, 2017, FTS raised additional financing by issuing 10,000 preferred shares for $20. Th e preferred shares have a cumulative dividend of $1 per share and are redeemable by FTS at any time for $22 per share. The preferred shares can be converted into a bond, at the option of the holder, repayable over a five-year period with a fixed interest rate of 7%.
Required Prepare a report that discusses the accounting issues and provides recommended treatments. You have been asked to ignore any first-time audit adoption issues (e.g., opening balance issues with retained earnings) until later in the engagement; rather, you are expected to consider the implication of a covenant violation.

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90% of common shares Albert Whitsby 100% of common shares FTS FTM