Dunstan Electric Inc. is a public company specializing in the sale of high-end home appliances and consumer electronics with over 40 stores across Canada. Dunstan Electric is known for its guaranteed delivery within 24 hours. The company has been owned and operated by the Dunstan family for over 30 years. You work for a small accounting firm that helps Dunstan Electric from time to time on a contract basis. It is now December 11, 2024, and Jack Dunstan, founder and chief executive officer (CEO), called you to say that one of the companys largest stores was completely destroyed in a fire on December 7. With less than a month until the year-end, this fire has happened at a bad time. Dunstan Electric is insured for damage caused by fire and the insurance policy states that the insured will receive the fair value of the building that was destroyed whether or not it is rebuilt. There is no business interruption insurance policy. The statement of claim is currently being prepared. Once the insurers receive the claim, it will be validated, approved, and then paid after six months to allow appropriate law enforcement investigations (if any) to take place. The accounting staff started working on the claim but have not yet completed it. Prepare a memo outlining the financial accounting considerations and any other issues resulting from the fire, in addition to any other issues outlined. Exhibit 1 Information from Dunstan Electric According to records at head office, the book values of the relevant capital assets are as follows as at the time of the fire; Land Building (destroyed) Fixtures, computer hardware, and software(destroyed) Cost 1,230,000 722,000 495,000 Net Book Value 1,230,000 545,000 221,000 Preliminary estimates include the following Building Since the building was completely destroyed in the fire, a now one must now be built. As required by the insurance company, estimates from two contractors have already been received. It is estimated to take eight months to rebuild the burnt store and the the cost of construction of the building (after site cleanup) with be $1,500,000 Jack is unsure how to record the effects of the fire on PPE and pending insurance payouts. Additionally he is interested to know what amount the Land and Building will be valued at once rebuilding is complete. Sales No goods were sold after the fire, however $500,000 worth of sales were received by a customer on December 10th which were sold on FOB shipping point terms. The salespeople estimated the weeks worth of sales before the fire took place, since the weekly update to the main server was lost. Ninety percent of Sales are on a cash basis, with deposits made daily. A printout of the bank statement is made at head office to confirm the deposit information. The remaining 10% of sales are on credit, with the applications approved at time of purchase by the store, and information transferred to head office as part of the weekly update. Please identify and discuss any issues the loss of the IT system may have of receivables. Inventory The destruction of the IT system also created havoc in determining year end inventory for the destroyed store. Since it is the holiday season, inventory levels of electronic goods are kept at higher levels than normal. To expedite the receipt of proceeds from the insurers, Jack went ahead and estimated the ending inventory by obtaining the inventory levels as at the date of the fire for the other three similar sized stores: (in millions) Store 26 Store 8 Store 37 Store 23 (destroyed) Inventory December 7, 2024 1.6 1.3 1.9 Unavailable Inventory November 30, 2024 1.5 1.2 1.8 1.6 Year to Date revenues December 7, 2024 (est) 16.4 12.9 17.4 Unavailable Year to date revenue November 30, 2024 15.3 12.0 15.8 15.5 Please advise of the necessary transactions and year end balances for the remainder of the year with respect to income and inventory, outlining any assumptions or calculations made. Other fire-related costs The loss of the store has meant additional costs will be incurred; Salaries still to be paid while employees are not able to work: $100,000 Estimated site demolition costs and clean up costs $500,000 Other Dunstan Electronic just refinanced its operating line of credit with its bank in November. As a result of this agreement, the bank requires audited financial statements for 2024 no later than February 5, 2025. Jack is worried about how the new tighter timeline might affect the qualitative characteristics of accounting information. The bank has also agreed to provide a bridge loan of $1,500,000 at 8% annual interest rate, to fund reconstruction while the insurance process is underway. Additionally, January 1, 2023, Dunstan Electronic acquired 40,000 shares, representing 20% of the outstanding shares of Tango Limited, an electronics manufacturer, at a price of $30 per share. On July 31, 2023, Tango declared and paid a dividend of $2 per share. Tangos net income for 2023 was $2,500,000. On December 31, 2023, the shares of Tango, which are not publicly traded, but for which there is an active market, were trading at $36 per share. As part of the initial share purchase, Dunstan also purchased the exclusive right to distribute a line of proprietary products for the next 5 years for $300,000. Dunstan Electronic needs to determine how to report and record its investment in Tango shares, the distribution rights, as well as how the above events will affect Dunstans financial statements