Alexander Electronics Ltd. (AEL) is a retailer of home electronics, software, music, and video games in a medium-sized Canadian city. The store has been in business for many years and has grown along with the community. Recently, AEL's owner has decided to sell the store because he felt he was too old for the rigours of operating it. Ryan Evans has expressed interest in buying AEL and he and the current owner have been negotiating for several months. Mr. Evans has worked for AEL as a marketing manager and he is confident it will continue to be successful. Buying AEL will also fulfill a lifelong ambition of Mr. Evans to own his own business. The current owner and Mr. Evans have agreed in principle to base the selling price on AEL's net income before unusual items for the year ended December 31, 2020. It's late January 2021. Mr. Evans has just received AEL's 2020 financial statements. For the most part, he's satisfied with the statements but he has some concerns and has approached you for advice about them. He would like a report evaluating the appropriateness of the treatments used in AEL's 2020 income statements for purposes of determining the price he should pay. 1. AEL has been given exclusive distribution rights in the region for a new video game called Zordef of the Deep (Zordef). Zordef is scheduled to be released on February 5, 2021. When AEL learned in early December 2020 that it would have exclusive distribution rights, it set up a program that would allow people to guarantee themselves a copy of Zorde as soon as it was released. Under the program, a customer would purchase the game in advance by paying the full retail price. The customer would then receive a certificate that could be exchanged for Zordef when it was released. As of December 31, 2020, over 4,000 people had signed up and paid $69.99 for Zordef. AEL's cost per copy will be $45.00. AEL will have to pay the manufacturer of Zordef 30 days after the game is delivered to the store. AEL recognized the revenue when a customer signed up for the program, paid for the game, and received their certificate. 2. During 2020, AEL began offering service contracts to customers who wanted support with any technical problems they had with their electronic equipment. Customers can buy one-, two-, or three-year service contracts. Payment must be made in full at the beginning of the contract and the price is discounted for the longer-term arrangements. Customers can cancel their contracts at the end of the first year (for two- and three-year contracts) and receive a refund for the unused portion. AEL recognized the revenue when customers signed up and paid for their contracts. 3. In previous years, AEL's current owner took an annual salary of between $75,000 and $100,000 per year. In 2020, he received no salary, opting instead to receive a dividend of $65,000. 4. In November, AEL launched a major advertising campaign in the city. The campaign ran until just before Christmas. The purpose of the campaign was to promote AEL for the Christmas season as well as to create awareness of the store in parts of the city that historically had not shopped at AEL. AEL capitalized the costs and is amortizing them over 12 months. 5. In February 2020, AEL sold a piece of land for $635,000. The land originally cost $210,000 and was purchased in 2012 when the current owner was thinking that a new, modern, stand-alone lo- cation might eventually be needed to allow AEL to grow to meet the needs of its customers. The owner sold the land because he received an offer that was "too good to refuse" and he didn't think there would be a need for a new location in the foreseeable future. Required Prepare the report requested by Mr. Evans. Alexander Electronics Ltd. (AEL) is a retailer of home electronics, software, music, and video games in a medium-sized Canadian city. The store has been in business for many years and has grown along with the community. Recently, AEL's owner has decided to sell the store because he felt he was too old for the rigours of operating it. Ryan Evans has expressed interest in buying AEL and he and the current owner have been negotiating for several months. Mr. Evans has worked for AEL as a marketing manager and he is confident it will continue to be successful. Buying AEL will also fulfill a lifelong ambition of Mr. Evans to own his own business. The current owner and Mr. Evans have agreed in principle to base the selling price on AEL's net income before unusual items for the year ended December 31, 2020. It's late January 2021. Mr. Evans has just received AEL's 2020 financial statements. For the most part, he's satisfied with the statements but he has some concerns and has approached you for advice about them. He would like a report evaluating the appropriateness of the treatments used in AEL's 2020 income statements for purposes of determining the price he should pay. 1. AEL has been given exclusive distribution rights in the region for a new video game called Zordef of the Deep (Zordef). Zordef is scheduled to be released on February 5, 2021. When AEL learned in early December 2020 that it would have exclusive distribution rights, it set up a program that would allow people to guarantee themselves a copy of Zorde as soon as it was released. Under the program, a customer would purchase the game in advance by paying the full retail price. The customer would then receive a certificate that could be exchanged for Zordef when it was released. As of December 31, 2020, over 4,000 people had signed up and paid $69.99 for Zordef. AEL's cost per copy will be $45.00. AEL will have to pay the manufacturer of Zordef 30 days after the game is delivered to the store. AEL recognized the revenue when a customer signed up for the program, paid for the game, and received their certificate. 2. During 2020, AEL began offering service contracts to customers who wanted support with any technical problems they had with their electronic equipment. Customers can buy one-, two-, or three-year service contracts. Payment must be made in full at the beginning of the contract and the price is discounted for the longer-term arrangements. Customers can cancel their contracts at the end of the first year (for two- and three-year contracts) and receive a refund for the unused portion. AEL recognized the revenue when customers signed up and paid for their contracts. 3. In previous years, AEL's current owner took an annual salary of between $75,000 and $100,000 per year. In 2020, he received no salary, opting instead to receive a dividend of $65,000. 4. In November, AEL launched a major advertising campaign in the city. The campaign ran until just before Christmas. The purpose of the campaign was to promote AEL for the Christmas season as well as to create awareness of the store in parts of the city that historically had not shopped at AEL. AEL capitalized the costs and is amortizing them over 12 months. 5. In February 2020, AEL sold a piece of land for $635,000. The land originally cost $210,000 and was purchased in 2012 when the current owner was thinking that a new, modern, stand-alone lo- cation might eventually be needed to allow AEL to grow to meet the needs of its customers. The owner sold the land because he received an offer that was "too good to refuse" and he didn't think there would be a need for a new location in the foreseeable future. Required Prepare the report requested by Mr. Evans