Do the Following work:-
Eastjet Airlines Eastjet Airlines (EJA) is a regional airline that services most cities in the Maritimes and Eastern Canada. The company began in 2007 when three friends felt that the Maritimes was an underserviced market. Joe, Jack, and Jamal each own one third of all the issued common shares and exercise equal control over the company. After their start-up phase, management began to expand its routes. Currently, EJA offers only short-haul flights to and from Halifax, Moncton, and Sydney. However, EJA has planned an expansion of operations into Ontario as it received approval to fly into both Toronto's Pearson Airport, and the Thunder Bay International Airport, EJA plans to offer its first flights into Ontario in early 2022. In order to service the new routes into Ontario, EJA purchased a new airplane for $1 million. EJA obtained a 10-year mortgage from the Bank of Sydney in order to finance the acquisition of the planes. The terms and agreement of the mortgage can be found in Exhibit I. Jack, who is responsible for the accounting functions, has always prepared the financial statements for internal reporting purposes. The statement of financial position, as at December 31, 2020, is included in Exhibit II. As a result of the new bank loan, the financial statements must now be audited. As a result, EJA has hired Lebeau and Liang LLP (L&L), a Certified Professional Accountant firm, to complete the audit. You are the senior accountant at L&L, assigned to the audit. You met with Jack as part of your auditing planning, Jack states "I understand that there is Part 1 (IFRS) and Part II (ASPE) GAAP in Canada. Currently, the bank has not disclosed which set of standards must be used to prepare the financial statements. Therefore, could you help me understand the significant differences between ASPE and IFRS, as they relate to our financial statements?" The notes from your meeting can be found in Exhibit III. It is now January 10, 2021. The partner has asked you to prepare a report addressing the client's concerns, and to discuss the policy differences between ASPE and IFRS. Required Provide the report Exhibit) Mortgage Agreement with the Bank of Sydney Total balance: Term: Commencement date: First payment Interest rate: Covenant: Collateral: Compliance: $1,000,000 10-year amortization, blended annual payments due on December 31. January 1, 2020 Due December 31, 2020 8% fixed over the 10-year period EJA shall maintain a debt to equity ratio that is no greater than 2:1. Secured debt against the value of the aircrafts Audited financial statements to be filed by January 31 of each year. 2019 Exhibit 11 Internal Financial Statements Statement of Financial Position As at December 31 (unaudited) 2020 Assets Current Cash $ 151,764 Accounts receivable 334,894 Inventory 86,800 Prepaid insurance 4,720 578,178 Capital 661,897 Future income tax asset 35,000 Long-term note receivable 20,000 $1,295,075 Liabilities and shareholders' equity Current Accounts payable $ 158,318 Bank loan-current portion 41,998 Income taxes payable 44,609 244,925 Bank loan-FirstBank of Canada 93,434 Common shares 900 Preferred shares 20,300 Contributed surplus 4,000 Retained earnings 931,516 956,716 $1,295,075 $ 160,502 411,760 159.400 2,060 733,722 382,158 35,000 0 $1,150,880 $130,146 72,000 92,920 295,066 130,664 900 20,300 4,000 699,950 725,150 $1,150,880 Note to the Statement of Financial Position: (6) Flight No. 877 (Exhibit) The statement of financial position does not include the impact of (e) Common share redemption any of the issues related to: (d) The convertible bonds (a) The new bank debt (mortgage with the Bank of Sydney) or the related aircraft Related to preferred share redemptions in the past, Exhibit III Notes fom your Discussion with EJA Management Purchase of Aircrafts and New Bank Debt management that it is probable (about a 60% chance that they will Jack informed you of the fact that the December 31, 2020, lose the lawsuit. The loss could range anywhere between $20,000 statement of financial position does not include the acquisition and $50,000. If the lawsuit is lost, there is a 20% chance that EJA of the new aircraft, or the new bank debt. Jack did not will have to pay $20,000, a 55% chance that it will have to pay even record the journal entry for the first payment made on $50,000, and a 25% chance that EJA will pay $35,000. December 31, 2020 Cancellation of Common Shares Bank Loan with the First Bank of Canada On September 15, the company reacquired and cancelled 9 shares The total outstanding balance of 93,434 is due in full on January (3 from each of Jack, Joc, and Jamal). The redemption price was 15, 2021. Jack has left the total balance as long-term as at the $1,035 per share. Jack was unsure of how to account for this December 31 year end because on January 3, 2021, he was able to transaction, and therefore did not make any entries as at your end renegotiate the loan on a long-term basis. Jack has provided you for the redemption. Prior to the reacquisition, there were 900 with a copy of a non-cancellable agreement to refinance the debt as shares outstanding. January 3, 2021. Convertible Bonds Flight No. 877 In order to obtain additional capital to finance the expansion, EJA On November 24, 2020, 26 passengers on Flight No. 877 were issued $500,000 in 8%, 10-year convertible bonds on January 1, injured upon landing when the plane skidded off the runway. 2020, for $500,000 cash. Each $1,000 bond includes the right to Fortunately, no one was injured seriously; however, personal injury purchase I share for $750 during the life of the bond. The current suits were still filed on December 1, 2020, for damages totaling market rate for similar nonconvertible bonds is 9%. The fair value $50,000. Legal counsel has studied each suit and advised EJA of the option using an option pricing model is $49,760. Analysis of Accounting Issues Identify EACH accounting issue in the case using the following format: ISSUE #1 - State the accounting issue and how it is currently being accounted for. Identify any possible alternative ways to account for the issue such as to capital or expense. Discuss the appropriate GAAP criteria that should be applied such as the definition of a capital asset. Try to provide a balanced analysis if alternatives do exist. For example, do not only provide facts to support capitalization, try to also discuss points that support the expensing option. Apply case facts to the noted GAAP criteria. This will support the criteria and ultimately provide the support needed for a recommendation. Recommend how the issue should be accounted for. Quantify the financial statement impact of each adjustment to correct or account for the issue. If numbers are not provided simply discuss the general financial statement impact. Eastjet Airlines Eastjet Airlines (EJA) is a regional airline that services most cities in the Maritimes and Eastern Canada. The company began in 2007 when three friends felt that the Maritimes was an underserviced market. Joe, Jack, and Jamal each own one third of all the issued common shares and exercise equal control over the company. After their start-up phase, management began to expand its routes. Currently, EJA offers only short-haul flights to and from Halifax, Moncton, and Sydney. However, EJA has planned an expansion of operations into Ontario as it received approval to fly into both Toronto's Pearson Airport, and the Thunder Bay International Airport, EJA plans to offer its first flights into Ontario in early 2022. In order to service the new routes into Ontario, EJA purchased a new airplane for $1 million. EJA obtained a 10-year mortgage from the Bank of Sydney in order to finance the acquisition of the planes. The terms and agreement of the mortgage can be found in Exhibit I. Jack, who is responsible for the accounting functions, has always prepared the financial statements for internal reporting purposes. The statement of financial position, as at December 31, 2020, is included in Exhibit II. As a result of the new bank loan, the financial statements must now be audited. As a result, EJA has hired Lebeau and Liang LLP (L&L), a Certified Professional Accountant firm, to complete the audit. You are the senior accountant at L&L, assigned to the audit. You met with Jack as part of your auditing planning, Jack states "I understand that there is Part 1 (IFRS) and Part II (ASPE) GAAP in Canada. Currently, the bank has not disclosed which set of standards must be used to prepare the financial statements. Therefore, could you help me understand the significant differences between ASPE and IFRS, as they relate to our financial statements?" The notes from your meeting can be found in Exhibit III. It is now January 10, 2021. The partner has asked you to prepare a report addressing the client's concerns, and to discuss the policy differences between ASPE and IFRS. Required Provide the report Exhibit) Mortgage Agreement with the Bank of Sydney Total balance: Term: Commencement date: First payment Interest rate: Covenant: Collateral: Compliance: $1,000,000 10-year amortization, blended annual payments due on December 31. January 1, 2020 Due December 31, 2020 8% fixed over the 10-year period EJA shall maintain a debt to equity ratio that is no greater than 2:1. Secured debt against the value of the aircrafts Audited financial statements to be filed by January 31 of each year. 2019 Exhibit 11 Internal Financial Statements Statement of Financial Position As at December 31 (unaudited) 2020 Assets Current Cash $ 151,764 Accounts receivable 334,894 Inventory 86,800 Prepaid insurance 4,720 578,178 Capital 661,897 Future income tax asset 35,000 Long-term note receivable 20,000 $1,295,075 Liabilities and shareholders' equity Current Accounts payable $ 158,318 Bank loan-current portion 41,998 Income taxes payable 44,609 244,925 Bank loan-FirstBank of Canada 93,434 Common shares 900 Preferred shares 20,300 Contributed surplus 4,000 Retained earnings 931,516 956,716 $1,295,075 $ 160,502 411,760 159.400 2,060 733,722 382,158 35,000 0 $1,150,880 $130,146 72,000 92,920 295,066 130,664 900 20,300 4,000 699,950 725,150 $1,150,880 Note to the Statement of Financial Position: (6) Flight No. 877 (Exhibit) The statement of financial position does not include the impact of (e) Common share redemption any of the issues related to: (d) The convertible bonds (a) The new bank debt (mortgage with the Bank of Sydney) or the related aircraft Related to preferred share redemptions in the past, Exhibit III Notes fom your Discussion with EJA Management Purchase of Aircrafts and New Bank Debt management that it is probable (about a 60% chance that they will Jack informed you of the fact that the December 31, 2020, lose the lawsuit. The loss could range anywhere between $20,000 statement of financial position does not include the acquisition and $50,000. If the lawsuit is lost, there is a 20% chance that EJA of the new aircraft, or the new bank debt. Jack did not will have to pay $20,000, a 55% chance that it will have to pay even record the journal entry for the first payment made on $50,000, and a 25% chance that EJA will pay $35,000. December 31, 2020 Cancellation of Common Shares Bank Loan with the First Bank of Canada On September 15, the company reacquired and cancelled 9 shares The total outstanding balance of 93,434 is due in full on January (3 from each of Jack, Joc, and Jamal). The redemption price was 15, 2021. Jack has left the total balance as long-term as at the $1,035 per share. Jack was unsure of how to account for this December 31 year end because on January 3, 2021, he was able to transaction, and therefore did not make any entries as at your end renegotiate the loan on a long-term basis. Jack has provided you for the redemption. Prior to the reacquisition, there were 900 with a copy of a non-cancellable agreement to refinance the debt as shares outstanding. January 3, 2021. Convertible Bonds Flight No. 877 In order to obtain additional capital to finance the expansion, EJA On November 24, 2020, 26 passengers on Flight No. 877 were issued $500,000 in 8%, 10-year convertible bonds on January 1, injured upon landing when the plane skidded off the runway. 2020, for $500,000 cash. Each $1,000 bond includes the right to Fortunately, no one was injured seriously; however, personal injury purchase I share for $750 during the life of the bond. The current suits were still filed on December 1, 2020, for damages totaling market rate for similar nonconvertible bonds is 9%. The fair value $50,000. Legal counsel has studied each suit and advised EJA of the option using an option pricing model is $49,760. Analysis of Accounting Issues Identify EACH accounting issue in the case using the following format: ISSUE #1 - State the accounting issue and how it is currently being accounted for. Identify any possible alternative ways to account for the issue such as to capital or expense. Discuss the appropriate GAAP criteria that should be applied such as the definition of a capital asset. Try to provide a balanced analysis if alternatives do exist. For example, do not only provide facts to support capitalization, try to also discuss points that support the expensing option. Apply case facts to the noted GAAP criteria. This will support the criteria and ultimately provide the support needed for a recommendation. Recommend how the issue should be accounted for. Quantify the financial statement impact of each adjustment to correct or account for the issue. If numbers are not provided simply discuss the general financial statement impact
