Core 1 — Integrated Problem 8 Scenario (120 minutes) Solstice Fitness Co. (Solstice) is a privately-owned chain of high-end fitness clubs offering a range of services and amenities to its members, including state-of-the-art fitness facilities, group fitness classes, and luxury spa treatments. In an effort to further expand its range of offerings, Solstice acquired 100% of the shares of Onyx Health Bar (OHB) on January 1, 2021. OHB is an oxygen and IV-drip bar offering customers flavour-enhanced oxygen and vitamin IV infusions, which have been shown to boost the immune system, reduce stress, and enhance alertness. OHB’s services are a perfect fit with the high-end, health-conscious image promoted by Solstice. While OHB currently has only one stand-alone location in Toronto, Solstice intends to eventually incorporate OHB-branded oxygen and IV-drip bars in all of its fitness clubs across Canada. It is now February 16, 2021. You, CPA, are a senior financial analyst at Solstice, and the controller, Jennifer Lee, has asked for your help dealing with a few issues she has noted since the acquisition. Solstice and OHB are still in the process of integrating their financial reporting systems. While Solstice has established financial reporting processes and systems controls in place, Jennifer is skeptical about the manual processes in place at OHB. Both Solstice and OHB apply accounting standards for private enterprises (ASPE). Task #1 Jennifer’s first concern is that OHB is not accounting for its capital assets correctly. She asks you to meet with Robyn Worth, who has been responsible for most of the record keeping at OHB since it was founded in January 2019. At your meeting, Robyn shares the following: “Capital assets at OHB consist mainly of the equipment and machines used to administer oxygen and IV vitamin infusions to our customers. I track all of the assets and their accumulated depreciation in an Excel spreadsheet, where I depreciate the machines and equipment over their useful lives. “We pay an external party to service the oxygen machines on a quarterly basis. This ensures their continued cleanliness and functionality. The service provider makes regular maintenance visits and special service calls if need be. For example, if one of the oxygen concentrators stops working, we just call the service provider and they will Core 1 — Integrated Problem 8 Problem 2 / 6 ensure it’s back up and running right away. For this, we pay a flat quarterly fee, plus the cost for any additional replacement parts required. So far, there have been no charges above the flat quarterly fee. I include the costs in the fixed assets register and depreciate them along with the rest of the equipment.” Perform an analysis of OHB’s treatment of the quarterly service fees to determine whether it is in accordance with ASPE. Your response should be no longer than half a page. Task #2 At your meeting with Robyn, she also provided you with an excerpt from OHB’s fixed asset register (Appendix I). Assuming the service provider fees should not be capitalized, provide Robyn with the required adjusting journal entry, and provide your supporting analysis in Excel. Hint: Note that filtering has been enabled in each column. Your response should be no longer than half a page, excluding any Excel files. Task #3 Jennifer has asked that you review and provide feedback on the fixed asset register prepared and maintained by Robyn. She would like to be made aware of any concerns you have regarding the quality of the data and the impact it will have on the business. For any issues that you identify, discuss the implications and provide recommendations to address these issues. Your response should be no longer than two pages. Task #4 Jennifer has indicated that she would eventually like to integrate OHB’s manual system for accounting for property, plant, and equipment with Solstice’s automated system. Details on the two systems and the integration plan are included in Appendix II. Identify any risks that may exist related to the integration of the two systems and, where possible, provide recommendations to alleviate these risks. Your response should be no longer than one and a half pages. Core 1 — Integrated Problem 8 Problem 3 / 6 Task #5 Jennifer’s final area of concern is with the monthly internal reporting prepared by OHB. Jennifer had asked Robyn to prepare a summary of OHB’s financial results in its first month following the acquisition. She was surprised when Robyn provided her with a page filled with several colourful visualizations (Appendix III), as this is not the type of internal reporting she is used to seeing. To save time, Jennifer has asked that you help her interpret the meaning of these images. Interpret the financial results provided in Appendix III, identifying any areas of concern that should be brought to Jennifer’s attention. Your response should be no longer than one page. Task #6 Please complete a survey on your experience in Core 1, located in the link below, and submit a screenshot of the survey completion page with your integrated problems (example screenshot provided below). Grades are given for survey completion.