Handel’s Toy Shoppe is well known in southwestern Ontario as ‘the place’ for grandparents to shop for just the right gifts for their grandchildren. The store has just finished its festive holiday season, and is working on its December 31 year-end journal entries. You are an accountant at the firm Better and Best, and you have been asked to assist Tony Handel, the store’s sole owner, with the following issues. Please refer to the details on the previous page.

On October 1, Handel’s sold for $300 an old shelving unit that had an original cost of $6,000 and an October 1 carrying value of $1,000. On the spot where the shelving unit used to be, Handel’s staff built a new interactive Play Station where children could try out games and toys. When the Play Station was completed on October 31, it had an estimated fair value of $5,000, an estimated useful life of 5 years, and an estimated residual value of zero. The following costs were incurred related to the Play Station:

Wages for employees for hours spent on construction $2,000 Employee benefits earned during hours spent on construction 200 Wood, paint, screws, and other building materials 1,200 Cost of new toys and games put into play area 400 Cost to train employees on how to supervise the new play area 250 Cost for architect fees to design new area 300 Allocation of general store overhead during construction period 100

Variable overhead costs directly related to construction 50

On November 1, Handel’s purchased 30,000 (25%) of the shares of its main supplier, Brixel, for $35 per share. Brixel is a public company with actively traded shares. Handel’s is not closely related to Brixel, however Tony is interested in having a long-term relationship with Brixel, and has become a member of Brixel’s board of directors. He regularly provides advice to Brixel on key operating decisions.

At the time of the purchase, Brixel’s financial statements showed net assets with a carrying value of $3,850,000. The depreciable assets had a carrying value that was $150,000 lower than fair value, and had a remaining useful life of 10 years. The non-depreciable assets had a carrying value equal to fair value.

On December 31, Brixel’s shares had a fair value of $37 per share. During November and December 2020, Brixel earned a total of $450,000 and paid total dividends of $40,000. In order to assist with income tax returns, any dividend or interest income is reported separately from other gains and losses.

1. Identify the accounting issue. Briefly explain

2. Provide all journal entries for each issue for the current year.
   o Assume that all transactions are settled in cash.
   o For the investment in Brixel shares, include entries for all allowable options. If there is an option that you did not use, explain why it was excluded.