Paint Inc. (PI) has been operating as a family owned private company for the past 30 years. It started as a company manufacturing paint for sale in its own retail stores in Ontario. PI is known as a manufacturer of high quality paint. Since then it has expanded with stores across Canada and recently started a decorating business. It has no desire to go public at this point in time and wants to keep accounting costs as low as possible.

With the recent real estate boom and new housing, the company has been very profitable for the past few years. PI has a loan with Canadian Bank. The bank requires audited financial statements and has a maximum debt to equity ratio.

You have recently been hired as an accounting consultant to assist PI’s board of directors. You have been asked to develop appropriate accounting policies for events that have occurred during 20X5. The board has asked that you explain fully your analysis for your recommendations. PI has a 31 December year end.

1. Individuals can purchase paint in the store or order on line. If they order on line they must pay by credit card. Contractors and real estate developers can purchase paint directly at the warehouse in bulk and receive a 15% to 25% discount depending on the quantity they purchase. They also have 30 days in which to pay. The paint provides a three month money back guarantee.

2. In the summer of 20X5, to encourage use of their new decorating services, PI offered customers a special deal. With the purchase of $200 of paint they received one hour of consulting advice from the decorator for free. Normally, the fee for the decorating service is $75 an hour. This deal was very popular with many customers purchasing additional services from the decorator beyond the one hour for free.

3. On 1 April 20X5, PI announced it was going to sell one of its older manufacturing facilities including all of the equipment. This facility will be replaced in a new location with a brand new, fully computerized, state of the art facility. The new facility will be operational in the spring of 20X6. Until that time PI will continue to manufacture in the existing facility. The facility has been listed at a reasonable price. The carrying amount of the facility and equipment is $1,000,000 with a fair value of $850,000. The land has a carrying amount of $200,000 and a fair value of $1,200,000.

4. In 20X5, PI traded a piece of excess land they owned for a potential new store for some manufacturing equipment for the new facility. The land had a carrying amount of $80,000, but three real estate appraisals estimated the fair value to be $500,000. The equipment was specially manufactured for PI and is unique.

5. In 20X5, PI sold a large quantity of paint to a board member who owns a new housing development. The paint was sold to the director for cash and the director was given a 25% discount and 30 days to pay.

6. In February 20X6, PI was informed that one of its building contractors went bankrupt and will not be able to pay an outstanding receivable of $80,000. This receivable was not considered in determining their allowance for bad debts for 20X5.

Required:

Prepare the report.