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Core 1 Practice Case 3 Case (60 minutes) Orion Ltd. (Orion) is a private company based in Charlottetown, P.E.I., which commenced operations in October of

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Core 1 Practice Case 3 Case (60 minutes) Orion Ltd. (Orion) is a private company based in Charlottetown, P.E.I., which commenced operations in October of 2018. After three months of losses, it quickly began turning a profit. Most of Orion's business comes from a matchmaking service for clients who are seeking a long-term romantic relationship, while the rest of the business caters to newcomers to Charlottetown looking to build friendships and social networks. It is now September 25, 2019, and you, CPA, have just met with Sasha Wall, a partner at Brick and Wall Chartered Professional Accountants (B&W). Sasha tells you that the firm has recently accepted Orion as a new audit client, and that you will be the senior on the engagement. Orion's bank has insisted that an audit be performed and that the financial statements be prepared using accounting standards for private enterprises (ASPE). There are no specific covenants on the bank loan, but the bank manager noted that she will be monitoring the profitability of this start-up business very closely." Orion has a September 30 year end. Sasha explained that she met with Rico Ranch, president and sole shareholder of Orion, earlier today. She took detailed notes during the meeting as Rico gave her an overview of recent events at Orion and described how Orion has accounted for various items (see appendix). Sasha has asked you to discuss any accounting issues that you identify, and provide valid audit procedures addressing each of the significant accounting issues and the risks they pose. You do not need to complete an audit planning memo for now. Your response should be no longer than 1,800 words, excluding any Excel files. Appendix Notes from meeting with Rico Ranch Matchmaking revenue Rico is excited about the revenues that Orion generated during its first year of business. The main revenue source is a matchmaking service for clients seeking a romantic relationship. New clients sign a contract and pay an up-front fee of $1,200, which is deferred and recorded evenly over 12 months. The fee is payable upon initial consultation, at which time Orion helps the client create a personal profile and record a video for potential dates to view. Clients have regular contact with Orion staff to view videos of potential matches and discuss their progress over a 12-month period. At the end of the year, if clients have still not found a match, they can request a refund of 25% of their fee. If they find a match before the 12 months is up and leave the program, they do not receive a refund. However, they may return within the 12-month period if the relationship ends. Client sign-ups for the matchmaking service began in January of 2019 and have occurred evenly since, with 400 customers enrolled. So far, 150 of the customers have entered a long-term relationship and have happily left the program. Socialize in Charlottetown Series Orion co-ordinates regular events such as dinner parties, sporting events, ski trips, and wine tastings. Orion is responsible for identifying events that are of interest to clients, securing spaces at the events, and then promoting the events to its clients. Venues will often put on events specifically to meet Orion's needs if a minimum number of clients can be guaranteed. Clients pay the fees in advance to Orion and attend as part of the group. For example, a recent wine tasting cost $100 per person and Orion charged its customers $125 per person to attend. Orion booked an expense of $100 for each client for the fee paid to the venue and recorded $125 in revenue for the amount collected from participants (fee + Orion's standard 25% markup). Some of the clients at the winetasting were unhappy with the quality of the wines and complained. Fortunately, the venue provided them with a coupon for a future visit as a gesture of goodwill. Orion is not responsible for addressing customer concerns related to the venues selected. During 2019, Orion has recorded $23,000 in revenue and $18,400 in expenses related to the Socialize in Charlottetown Series. Appendix (continued) Notes from meeting with Rico Ranch Capital assets Leases In June 2019, Orion leased a truck for four years at 0% interest, for a monthly payment of $792. If Rico is happy with the truck's performance, he will consider purchasing the truck at the end of the lease for the buyout amount of $40,000, as he would expect it to meet his needs for at least 10 years. The $40,000 is representative of what the fair value of the truck is expected to be at that time. Lease payments have been expensed in the financial statements. If the truck had been purchased for cash, the price would have been $65,000. Dinner for Eight Ltd. In January 2019, Orion invested in a business called Dinner for Eight Ltd. (DFEL) which had been started by Gagan Singh, a local restaurant owner. DFEL holds weekly dinners where eight clients are brought together for a meal at Gagan's restaurant. Rico wanted to invest in the business as he sees it as a good opportunity to bring together clients from Orion. Gagan invested $8,500 in initial capital to start the business. Orion subsequently invested $1,500 and holds a 15% ownership interest, while Gagan now holds the remaining 85%. Rico was pleased that he had the business sense to make sure a contract was drawn up by a lawyer, ensuring that the terms of this business relationship were clearly defined. Rico is a board member of DFEL and plans to become more involved in the business than he has been so far. Gagan told him that he appreciates Rico's increased involvement in decision-making because Rico truly understands the group dynamics. Rico has recorded his $1,500 investment as an "other asset" for now because he is not sure what to do with it. He has not recorded any other amounts in Orion's accounts relating to DFEL. Gagan has been doing the billing and payment of expenses relating to the dinner parties. For 2019, DFEL earned profits of $25,000 and did not pay any dividends. Core 1 Practice Case 3 Case (60 minutes) Orion Ltd. (Orion) is a private company based in Charlottetown, P.E.I., which commenced operations in October of 2018. After three months of losses, it quickly began turning a profit. Most of Orion's business comes from a matchmaking service for clients who are seeking a long-term romantic relationship, while the rest of the business caters to newcomers to Charlottetown looking to build friendships and social networks. It is now September 25, 2019, and you, CPA, have just met with Sasha Wall, a partner at Brick and Wall Chartered Professional Accountants (B&W). Sasha tells you that the firm has recently accepted Orion as a new audit client, and that you will be the senior on the engagement. Orion's bank has insisted that an audit be performed and that the financial statements be prepared using accounting standards for private enterprises (ASPE). There are no specific covenants on the bank loan, but the bank manager noted that she will be monitoring the profitability of this start-up business very closely." Orion has a September 30 year end. Sasha explained that she met with Rico Ranch, president and sole shareholder of Orion, earlier today. She took detailed notes during the meeting as Rico gave her an overview of recent events at Orion and described how Orion has accounted for various items (see appendix). Sasha has asked you to discuss any accounting issues that you identify, and provide valid audit procedures addressing each of the significant accounting issues and the risks they pose. You do not need to complete an audit planning memo for now. Your response should be no longer than 1,800 words, excluding any Excel files. Appendix Notes from meeting with Rico Ranch Matchmaking revenue Rico is excited about the revenues that Orion generated during its first year of business. The main revenue source is a matchmaking service for clients seeking a romantic relationship. New clients sign a contract and pay an up-front fee of $1,200, which is deferred and recorded evenly over 12 months. The fee is payable upon initial consultation, at which time Orion helps the client create a personal profile and record a video for potential dates to view. Clients have regular contact with Orion staff to view videos of potential matches and discuss their progress over a 12-month period. At the end of the year, if clients have still not found a match, they can request a refund of 25% of their fee. If they find a match before the 12 months is up and leave the program, they do not receive a refund. However, they may return within the 12-month period if the relationship ends. Client sign-ups for the matchmaking service began in January of 2019 and have occurred evenly since, with 400 customers enrolled. So far, 150 of the customers have entered a long-term relationship and have happily left the program. Socialize in Charlottetown Series Orion co-ordinates regular events such as dinner parties, sporting events, ski trips, and wine tastings. Orion is responsible for identifying events that are of interest to clients, securing spaces at the events, and then promoting the events to its clients. Venues will often put on events specifically to meet Orion's needs if a minimum number of clients can be guaranteed. Clients pay the fees in advance to Orion and attend as part of the group. For example, a recent wine tasting cost $100 per person and Orion charged its customers $125 per person to attend. Orion booked an expense of $100 for each client for the fee paid to the venue and recorded $125 in revenue for the amount collected from participants (fee + Orion's standard 25% markup). Some of the clients at the winetasting were unhappy with the quality of the wines and complained. Fortunately, the venue provided them with a coupon for a future visit as a gesture of goodwill. Orion is not responsible for addressing customer concerns related to the venues selected. During 2019, Orion has recorded $23,000 in revenue and $18,400 in expenses related to the Socialize in Charlottetown Series. Appendix (continued) Notes from meeting with Rico Ranch Capital assets Leases In June 2019, Orion leased a truck for four years at 0% interest, for a monthly payment of $792. If Rico is happy with the truck's performance, he will consider purchasing the truck at the end of the lease for the buyout amount of $40,000, as he would expect it to meet his needs for at least 10 years. The $40,000 is representative of what the fair value of the truck is expected to be at that time. Lease payments have been expensed in the financial statements. If the truck had been purchased for cash, the price would have been $65,000. Dinner for Eight Ltd. In January 2019, Orion invested in a business called Dinner for Eight Ltd. (DFEL) which had been started by Gagan Singh, a local restaurant owner. DFEL holds weekly dinners where eight clients are brought together for a meal at Gagan's restaurant. Rico wanted to invest in the business as he sees it as a good opportunity to bring together clients from Orion. Gagan invested $8,500 in initial capital to start the business. Orion subsequently invested $1,500 and holds a 15% ownership interest, while Gagan now holds the remaining 85%. Rico was pleased that he had the business sense to make sure a contract was drawn up by a lawyer, ensuring that the terms of this business relationship were clearly defined. Rico is a board member of DFEL and plans to become more involved in the business than he has been so far. Gagan told him that he appreciates Rico's increased involvement in decision-making because Rico truly understands the group dynamics. Rico has recorded his $1,500 investment as an "other asset" for now because he is not sure what to do with it. He has not recorded any other amounts in Orion's accounts relating to DFEL. Gagan has been doing the billing and payment of expenses relating to the dinner parties. For 2019, DFEL earned profits of $25,000 and did not pay any dividends

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