As a recently accredited CPA you have joined a growing firm of CPAs, Cromdex LLP. As the calendar has turned to 2024, you have been asked to attend a meeting with one of the founding partners, Mr. James Cromartie. At the meeting, Mr. Cromartie welcomes you to the firm and hands you a file that contains the following for a long standing client, Standbro Corp.: i. Notes of a Meeting with Standbros Management (Appendix I). ii. Draft Statement of Comprehensive Income for the year ended December 31, 2023 (Appendix II). iii. Draft Balance Sheet as at December 31, 2023 (Appendix III). Standbro Corp. manufactures specialized grinding equipment. The equipment can be ordered by customers from a catalogue or specialized to a customers requirement. Mr. Cromartie has asked you to review the Notes of the Meeting and prepare a report noting any adjusting journal entries that should be presented to the client. He specifically instructed that When preparing your report, focus on the current year only. We will consider any impact on the comparative numbers later. Also in your report, consider any matters of importance for Mr. Cromartie to review with the client. This report should also include two visualiations to assist in the understanding of the report. Please round any monetary amount to the nearest whole number.
The Companys equity investment portfolio was as follows: Carrying Value Fair Value Dec 31, 2023 Dec 31, 2023 Fair Value-Net Income $620,000 $800,000 Fair Value-Other Comprehensive Income $480,000 $600,000 The investment portfolio was acquired during 2023 utilizing funds from the settlement of litigation. The investments designated as Fair Value-Net Income represent investment in common shares of companies that are actively trades whereas the investments designated Fair Value-Other Comprehensive Income represent investments management has determined to be strategic in nature. The fair value of the investments designated as Fair Value-Other Comprehensive Income has been determined based on internal projections of future cash flows.
Please help us adjust financials and answer case question with Gaap.
During the year, the Company wrote off $300,000 of uncollectible accounts. Of this amount, $180,000 was subsequently collected and recognized as a gain on the reversal of impairment. Bad debt expense of $507,100 was recorded as a loss on impairment during the year. Collection of Accounts Receivable will continue to be done by the Corporate office and is not considered a divisional responsibility. Notes: 1. Head office costs are allocated costs determined by the Head Office. 2. The interest expense is allocated by Head Office and is not representative of debt costs specific to the Rubber Pellet division. APPENDIX II DRAFT BALANCE SHEET \begin{tabular}{|c|c|c|} \hline & Dec 31, 2023 & Dec 31, 2022 \\ \hline Cash & $7,810,000 & $3,250,000 \\ \hline Accounts Receivable & 9,375,000 & 7,250,000 \\ \hline Allowance for Expected Credit Losses & (949,100) & (742,000) \\ \hline Investments in Equity Instruments & 1,100,000 & \\ \hline Inventory & 2,325,000 & 1,800,050 \\ \hline Prepaid Expenses & 200,000 & 160,000 \\ \hline Total Current Assets & 19,860,900 & 11,718,050 \\ \hline Note Receivable & 500,000 & \\ \hline Land & 6,200,000 & 6,200,000 \\ \hline Buildings & 17,850,000 & 14,350,000 \\ \hline Accumulated Depreciation Buildings & (3,192,000) & (2,350,000) \\ \hline Equipment & 6,840,000 & 5,770,000 \\ \hline Accumulated Depreciation Equipment & (1,610,000) & (1,492,000) \\ \hline Office Equipment & 820,000 & 770,000 \\ \hline Accumulated Depreciation Office Equipment & (230,000) & (175,000) \\ \hline Total Noncurrent Assets & 27,178,000 & 23,073,000 \\ \hline Total Assets & $47,038,900 & $34,791,050 \\ \hline \end{tabular} \begin{tabular}{lrr} & Dec 31, 2023 & Dec 31, 2022 \\ Accounts Payable & $6,953,840 & $5,520,000 \\ Taxes Payable & 1,500,000 & 1,050,000 \\ Wages Payable & 680,000 & 651,050 \\ Current Portion of Long Term Debt & 1,650,000 & 1,200,000 \\ Total Current Liabilities & 10,783,840 & 8,421,050 \\ Long Term Debt & 15,200,000 & 13,400,000 \\ 25,983,840 & 21,821,050 \\ Total Liabilities & 1,500,000 & 1,500,000 \\ Common Shares (1,000,000 shares outstanding) & 19,555,060 & 11,470,000 \\ Retained Earnings & 21,055,060 & 12,970,000 \\ Total Shareholders' Equity & 44,038,900 & 34,791,050 \end{tabular} EXTRACTED FINANCIAL INFORMATION-RUBBER PELLET DIVISION Notes: 1. The fair value of the Inventory and Equipment is based on a written offer received from a local auction business. The Company is waiting for two other offers but has indicated the auction business offer is likely to be the best of the three possible offers. Other costs to close the sale are ignorable. 2. The fair value of the Land and Building is based on an independent appraisal provided by an experienced commercial property broker that has successfully sold comparable properties in the area. It is estimated the cost to dispose of the Land and Building would be approximately 10%. 3. Ignore any adjustment to depreciation. APPENDIX III DRAFT STATEMENT OF INCOME 2023 Revenue Cost of Goods Sold Gross Profit Operating Expenses Salaries and Wages Sales and Marketing Depreciation Distribution Loss on Impairment Gain on Litigation Settlement Gain on Impairment Reversal Interest Expense Total Operating Expenses Income Before Income Taxes Income Tax Expense Net Income \begin{tabular}{cc} 2023 & 2022 \\ $101,420,000 & $88,750,000 \\ 60,437,800 & 48,812,500 \\ \hline 40,982,200 & 39,937,500 \\ \hline \end{tabular} \begin{tabular}{rr} 18,750,000 & 16,250,000 \\ 6,250,000 & 5,847,000 \\ 1,015,000 & 860,000 \\ 825,000 & 650,000 \\ 507,100 & 420,000 \end{tabular} (600,000) (180,000) \begin{tabular}{rr} \hline 940,000 & 670,000 \\ \hline 27,507,100 & 24,697,000 \\ \hline 13,475,100 & 15,240,500 \\ 5,390,040 & 6,096,200 \\ \hline$8,085,060 & $9,144,300 \\ \hline \end{tabular} APPENDIX IV AGED ACCOUNTS RECEIVABLE ANALYSIS Dec 31, 2022 Aging of Accounts Receivable Dec 31, 2023 Aging of Accounts Receivable During the year, the Company wrote off $300,000 of uncollectible accounts. Of this amount, $180,000 was subsequently collected and recognized as a gain on the reversal of impairment. Bad debt expense of $507,100 was recorded as a loss on impairment during the year. Collection of Accounts Receivable will continue to be done by the Corporate office and is not considered a divisional responsibility. Notes: 1. Head office costs are allocated costs determined by the Head Office. 2. The interest expense is allocated by Head Office and is not representative of debt costs specific to the Rubber Pellet division. APPENDIX II DRAFT BALANCE SHEET \begin{tabular}{|c|c|c|} \hline & Dec 31, 2023 & Dec 31, 2022 \\ \hline Cash & $7,810,000 & $3,250,000 \\ \hline Accounts Receivable & 9,375,000 & 7,250,000 \\ \hline Allowance for Expected Credit Losses & (949,100) & (742,000) \\ \hline Investments in Equity Instruments & 1,100,000 & \\ \hline Inventory & 2,325,000 & 1,800,050 \\ \hline Prepaid Expenses & 200,000 & 160,000 \\ \hline Total Current Assets & 19,860,900 & 11,718,050 \\ \hline Note Receivable & 500,000 & \\ \hline Land & 6,200,000 & 6,200,000 \\ \hline Buildings & 17,850,000 & 14,350,000 \\ \hline Accumulated Depreciation Buildings & (3,192,000) & (2,350,000) \\ \hline Equipment & 6,840,000 & 5,770,000 \\ \hline Accumulated Depreciation Equipment & (1,610,000) & (1,492,000) \\ \hline Office Equipment & 820,000 & 770,000 \\ \hline Accumulated Depreciation Office Equipment & (230,000) & (175,000) \\ \hline Total Noncurrent Assets & 27,178,000 & 23,073,000 \\ \hline Total Assets & $47,038,900 & $34,791,050 \\ \hline \end{tabular} \begin{tabular}{lrr} & Dec 31, 2023 & Dec 31, 2022 \\ Accounts Payable & $6,953,840 & $5,520,000 \\ Taxes Payable & 1,500,000 & 1,050,000 \\ Wages Payable & 680,000 & 651,050 \\ Current Portion of Long Term Debt & 1,650,000 & 1,200,000 \\ Total Current Liabilities & 10,783,840 & 8,421,050 \\ Long Term Debt & 15,200,000 & 13,400,000 \\ 25,983,840 & 21,821,050 \\ Total Liabilities & 1,500,000 & 1,500,000 \\ Common Shares (1,000,000 shares outstanding) & 19,555,060 & 11,470,000 \\ Retained Earnings & 21,055,060 & 12,970,000 \\ Total Shareholders' Equity & 44,038,900 & 34,791,050 \end{tabular} EXTRACTED FINANCIAL INFORMATION-RUBBER PELLET DIVISION Notes: 1. The fair value of the Inventory and Equipment is based on a written offer received from a local auction business. The Company is waiting for two other offers but has indicated the auction business offer is likely to be the best of the three possible offers. Other costs to close the sale are ignorable. 2. The fair value of the Land and Building is based on an independent appraisal provided by an experienced commercial property broker that has successfully sold comparable properties in the area. It is estimated the cost to dispose of the Land and Building would be approximately 10%. 3. Ignore any adjustment to depreciation. APPENDIX III DRAFT STATEMENT OF INCOME 2023 Revenue Cost of Goods Sold Gross Profit Operating Expenses Salaries and Wages Sales and Marketing Depreciation Distribution Loss on Impairment Gain on Litigation Settlement Gain on Impairment Reversal Interest Expense Total Operating Expenses Income Before Income Taxes Income Tax Expense Net Income \begin{tabular}{cc} 2023 & 2022 \\ $101,420,000 & $88,750,000 \\ 60,437,800 & 48,812,500 \\ \hline 40,982,200 & 39,937,500 \\ \hline \end{tabular} \begin{tabular}{rr} 18,750,000 & 16,250,000 \\ 6,250,000 & 5,847,000 \\ 1,015,000 & 860,000 \\ 825,000 & 650,000 \\ 507,100 & 420,000 \end{tabular} (600,000) (180,000) \begin{tabular}{rr} \hline 940,000 & 670,000 \\ \hline 27,507,100 & 24,697,000 \\ \hline 13,475,100 & 15,240,500 \\ 5,390,040 & 6,096,200 \\ \hline$8,085,060 & $9,144,300 \\ \hline \end{tabular} APPENDIX IV AGED ACCOUNTS RECEIVABLE ANALYSIS Dec 31, 2022 Aging of Accounts Receivable Dec 31, 2023 Aging of Accounts Receivable
