Hey can you help me find the issues in my accounting case, specifically the ones I highlighted! Thanks :)!

Assignment #1 - Phantom Inc. Phantom Inc. (\"Phantom\") manufactures and sells drones (remote control flying devices that resemble helicopters) which are mostly sold to individuals, who are remote control toy plane enthusiasts. Drones are complex electronic devices which contain rechargeable batteries. Phantom's drones are considered to be the most sophisticated and it has over 60% market share of drones sold in North America. The company was incorporated 5 years ago by Mr. Stark, who is currently the sole shareholder and Chief Executive Officer (CEO) of the company. In order to grow the business, Phantom needs to obtain financing and therefore an investor is willing to purchase 50% of the shares in Phantom from Mr. Stark. The price to be paid for the shares will be based on the value of Phantom, which is agreed to be 5 times the average net income for the next three years (starting with the current year ended December 31, 2015). Under the agreement, Phantom must prepare annual audited financial statements, in accordance with IFRS, effective immediately. Phantom has never prepared audited statements in the past and Mr. Stark believes that no changes to his current accounting will be necessary. It is now February 12, 2016 and Mr. Stark has asked you to review the accounting issues facing Phantom in 2015 and prepare a report providing, fully supported recommendations about the accounting issues that you identify. As Phantom does not have an expert in accounting, he would like you to prepare any adjusting entries required (or state what additional information you need) that are consistent with your recommendations. You meet with Mr. Stark and learn the following: - - - Until recently, Phantom sold most of their products to large and small electronic retailers. Though there are several different types of drones sold, the average selling price of a drone for Phantom is $125 and Phantom earns a 40% margin. Phantom provides a 1 year, parts and labour, warranty on all drones sold. Due to the company's expertise in manufacturing, warranty costs have been 5% of the cost of sales. Phantom sold 300,000 drones in 2015 and records revenue when the drones are shipped to the retailers. The company reported warranty expenses in 2015 of $900,000, which represents the actual warranty costs incurred in 2015. Drones are composed of many electronic devices and parts, which generally decrease in cost over time, as more drones are sold in the market. Therefore, Phantom tries to maintained minimal inventory. To reduce time and keep things simple, Mr. Stark has the inventory counted at year end and uses the latest cost paid for each part to determine the cost of inventory. In early 2015, Phantom started to develop a new drone (\"Stealth\"), a revolutionary new drone helicopter. Mr. Stark realized that the biggest problem with internet companies, was delivering the products to the customer. Not only was it expensive but it required a lot of time and coordination. Therefore Phantom developed a new drone that is ideally suited to deliver small packages, quietly, fast and safely, in residential areas. The Stealth drone was developed by two engineers and the following costs have been expensed as incurred to date: o o Salaries, wages and benefits for the engineers Materials used in testing $ 200,000 $ 40,000 o o - - - - - Costs to register the patent for \"The Stealth\" Legal fees to register patent $ 10,000 $ 5,000 In September 2015, Phantom produced 10 \"Stealth\" drones for ACME Inc. (\"ACME\"), a potential new customer. ACME wanted to test the product for 4 months. It was agreed that ACME would not pay for the test drones, but that if they operated as planned, ACME would purchase many units in the future. Once the test period has expired, ACME will return the units to Phantom. The cost to produce each unit was $375 and has been expensed. Given the excellent results during the initial test period, in October 2015, ACME ordered 1,000 Stealth drones at a price of $600 per unit (Phantom earns 60% margin on these units). Phantom produced all the units, and ACME paid the full amount on December 16, 2015. ACME asked Phantom to store the units and deliver 20 units each month starting January 2016. Consistent with its revenue recognition policy, Phantom will record revenue when the units are shipped to the customer. Since developing the Stealth drone, Phantom has had positive feedback from other potential customers and great media attention, especially in social media, about the Stealth drone. However, no other orders, except ACME, were received as at December 31, 2015. In order to produce Stealth drone, a specialized building was constructed. The building was completed in June 2015 and has an estimated useful life of 30 years. The following costs were incurred to construct the building and included as a capital asset, called Building: o Land cost, including legal fees of $10k $ 1,000,000 o Design and architecture cost $ 25,000 o Building materials and contractor costs $ 1,500,000 o Salaries, wages and benefits of the company's employees involved in the construction of the building $ 200,000 o Administrative costs, including salaries and wages of the accounting and human resource employees managing the construction project $ 75,000 o Interest on bank loans for the project; the interest rate on bank loans is 6% per year $ 40,000 Phantom owns the old production facility, which is now not in use. Mr. Stark is not sure what to do with the property. It was purchased 5 years ago at a cost of $500,000 (land was valued at $50,000) and had a useful life of 15 years. In discussions with a local real estate agent, the property is worth $200,000 to $250,000. Mr. Stark is disappointed in the value and is considering using it for storing inventory of parts and finished goods. Currently, Phantom pays $30,000 per year to a company to store its inventory of parts and finished goods. In order to convince Phantom to sell the property, the real estate agent will only charge a commission of $10,000 to sell the property. As of December 31, 2015 no decision has been made. Required: Prepare the report requested by Mr. Stark