Case #1 (Suggested time: 60 minutes) Golf Practice Paradise Ltd. (GPP) operates an outdoor driving range facility that in the past has only been open between May and October as a result of the Canadian climate. In 2020, GPP expanded operations, buying the plot of land next door, tearing down some old fences and small structures on the land, and building a large dome, which houses a netted driving range, pods where groups can play golf using simulation software, and a walking track. GPP has a December 31 year end and has always provided reviewed financial statements prepared in accordance with ASPE to the bank with which it has a line of credit. However, GPP's owner, Yimeng Liu, is unsure how to account for some of the new transactions in 2020 surrounding the dome (Appendix I). It is January 4, 2021, and you, CPA, have been hired by Yimeng as an external consultant to advise on the accounting for these new transactions, with instructions to maximize net income where possible. You have also been asked to make recommendations to improve controls for the new dome operations. Yimeng gave you a tour of the facility and handed you a layout of the dome (Appendix II). You also met with the manager of the facility and made some notes (Appendix III).

APPENDIX I NEW TRANSACTIONS Costs Related to the Dome Construction started on the dome in early March 2020 and was completed just in time for the grand opening on November 1, 2020. The bookkeeper has capitalized the following costs for the new dome: Building materials $1,500,000 Labour 2,000,000 Land 800,000 Demolition costs 200,000 Land transfer tax 50,000 Legal costs 80,000 $4,630,000 The costs are all capitalized as one asset currently in the general ledger, but the bookkeeper wonders if the costs should be capitalized separately. The bookkeeper has also recorded $115,750 of depreciation, based on a 40-year useful life of the total costs. In addition, GPP has incurred the following costs with respect to the new property between March 1 and December 31, 2020: insurance - $25,000; property tax - $12,500; utilities - $20,000. The bookkeeper isn't sure how to account for these costs, so he has expensed them. Winter Package To launch the new facility, a special winter package offering was sold for $750. It included five golf lessons, 30 buckets of rental balls, and three simulation games, to be used anytime between November 1, 2020, and April 30, 2021. GPP's regular price list shows the following: 5 golf lessons $400 30 buckets of rental balls $300 3 simulation games $150 The bookkeeper is currently recording the revenue related to the winter package evenly over the six-month winter season.

APPENDIX I (continued) NEW TRANSACTIONS Coupons In December, coupons were given out to all 640 customers who had already purchased a season pass for unlimited use of the walking track. The coupon allowed them to purchase a GPP walking club T-shirt from the ProShop (GPP's gift shop) at half price between January and April 2021. The T-shirts retail normally for $15 and cost GPP $10 each. Based on similar promotions offered in previous years to the outdoor driving range facility customers, the manager thinks 35% of customers will take advantage of this coupon. The bookkeeper has not recorded anything with respect to this transaction. Bonds To finance the dome construction, bonds with a face value of $5 million were issued on January 1, 2020, for proceeds of $5,451,139. The bonds pay 3% annual interest (1.5% on each of June 30 and December 31), despite the annual market rate of interest being 2%. The face value of the bonds will be repaid at the end of 10 years. The bookkeeper was not sure how to treat the difference between the amount received and the face value of the bonds, so he recorded a gain. He was also unsure how to account for the difference between the coupon and market rates of interest, so he recorded the interest at the amount paid. He recorded the following entries for 2020: January 1, 2020 Dr. Cash $5,451,139 Cr. Gain on bond issuance $ 451,139 Cr. Bond payable $5,000,000 June 30, 2020 Dr. Interest expense $ 75,000 Cr. Cash $ 75,000 December 31, 2020 Dr. Interest expense $ 75,000 Cr. Cash $ 75,000 The bookkeeper would like to know if these entries are correct, and if not, which entries he should have made instead.

APPENDIX III NOTES ON MEETING WITH MANAGER The manager told me he is concerned that some people may be using the facilities without paying. For example, he has seen couples walking the track who he is sure did not visit the front desk first. Likewise, some people hitting buckets of balls do not look familiar, or in some cases, he's recognized the face but remembered the person paying over an hour before(the customer couldn't still be hitting the same bucket of balls an hour later!). There is no staff member supervising the netted driving range or the walking track. Customers are responsible for getting their own buckets of balls (which are owned by GPP)once they pay at the front desk. The manager was very happy with his decision to put all the buckets right behind the tee boxes, so the golfers can just pick up the buckets they paid for and start right away. The manager mentioned that golf balls are sometimes found on the walking track and that GPP is lucky that no walker has been injured by being hit. There is a touch screen in the simulation pod rooms where golfers can touch the "Start Game" button, input their nicknames, and select the virtual course they want to play. This has not yet been linked up to the pod reservation and payment system used by employees at the front desk, although the capability exists. No alcohol is permitted on the premises; however, the manager noted that he has found several empty beer bottles in the garbage receptacles of the pod rooms. One day, the front desk employee had to use the bathroom during her shift. As a result, a customer must have been alone in the payment area, and they stole some of the golf merchandise on display.