Case Assigmnent - lGroup Project ADMS 3595 2019 Fall Due Date : December 3, 2019 (11:59 pm) Winery Inc. (WI) is a private corporation formed in 2019. Prior to 2019, WI had been operating as a partnership owned by the Verity family. Due to their success and desire to expand they have made the decision to incorporate so that they will have additional sources of nancing. They are just establishing their accounting policies for their rst year-end as a corporation. Their previous nancial statements as a partnership were used for ling their tax returns and management purposes. They were not audited or reviewed. WI grows grapes and produces wines in Ontario. It also produces beer, spirits, and juices. WI has a small store on the property where it operates winery tours and sells wine. WI incorporated to raise additional capital to expand its operations by building a new building for the winery operations that has 50% additional capacity and a larger store. In 2019, to nance the expansion of the winery, WI obtained a bank loan with Big Bank. Previously, when WI operated as a partnership, the bank had provided the company with a line of credit and the owners had provided personal guarantees. The loan now has the personal guarantees removed and instead the bank requires annual audited nancial statements and has a nancial covenant that stipulates a maximum debt to equity ratio. You have recently been hired to develop new accounting policies for WI's 31 December year-end. Previously, the partnership used the cash basis of accounting. The owners know this will no longer be suitable for their corporation. You have been asked by the owners to discuss altematives and provide recommendations on the appropriate accounting policies for events below that have occurred during 2019. WI has a tax rate of 34% and an incremental borrowing rate of 10%. 1. The Verity family was issued Class A shares that have 10 votes per share. Other private investors were issued Class B shares with one vote per share. Investors were allowed to purchase the Class B shares in installments over the next four years. All shares must be tiully paid in 2023. 2. WT issued preferred shares in 2019 to private investors. Instead of cash dividends, shareholders will receive bottles of wine as dividends. 3. In the past, income taxes were paid by the partners (partners taxed personally] not by the corporation. WI anticipates a taxable loss of $500,000 this year due to the expansion. 4. WI initiated a stock option plan in 2019. Stock options will be granted if employees reach a targeted level of sales for the year. 5. WI incurred $30,000 of costs in 2019 to develop a website for the company. This included acquired software, costs to register the Internet domain name, research ideas on the style of the website, graphic design, consulting fees, training, and monthly updates on prices. 6. In IvIarch 2019, WI spent 3 20,000 on an extensive marketing and advertising campaign to generate additional business. This expenditure was set up as an intangible asset