Pina Colada Hotels Ltd. (PCHL) is a small boutique hotel that provides 42 suites that can be rented by the day, week, or month. Food service is available through room service as well. In addition, there are two suites that have been rented on a long-term basis to corporate tenants, who have access to their suites anytime throughout the year without making a reservation. The company has a December 31 year end, and you are preparing the year-end financial statements using IFRS. The following issues require your consideration:

1.

Cash

The hotel keeps a significant amount of euro currency on hand to meet the needs of its guests. At year end, there was 12,720 on hand. The year-end exchange rate was $1.40, and the average rate for the year was $1.47.

The bank statement balance at December 31 was $167,791. There were outstanding cheques of $55,518 and an outstanding deposit of $16,416. Bank charges per the bank statement were $69 for the month of December and have been recorded.

2.

Accounts receivable and allowance for doubtful accounts

The hotel charges $159 per night for accommodation in one of the rental suites, and guests pay at the end of their stay, with daily revenue being accrued as it is earned. At December 31, the amount outstanding from short-term guests was $11,130. At year end, management expects to be unable to collect an amount equal to 5% of the outstanding receivables for this type of suite. During the year, Service Revenue amounted to $1,855,000, and the balance in Allowance for Doubtful Accounts at the end of the previous year was $15,900. During the year, $33,920 in accounts was written off.

The two corporate suites are rented for $47,700 apiece per year. The payment for these longer term rentals is due in advance each July 1 for the following 12 months. One of these corporate suites has been in use for part of the year, but the corporate tenant went bankrupt and was unable to pay the $47,700 fee. Hotel management had hoped the tenant would eventually be able to pay, and it allowed the company to use the suite until the end of October. Since then, the hotel has been in negotiations with the bankruptcy accountant and expects to eventually receive a settlement of $10,600. The balance will become uncollectible; no allowance for doubtful accounts has been recorded with respect to these suites as there have never been collection problems in the past.

3.

Inventory

PHL follows a policy of FIFO costing, and values items at the lower of cost and net realizable value based on an individual item basis.

The hotel has a standing weekly order at set prices with a local catering firm. If the food is not eaten before the next delivery is received, it is donated to the local womens shelter. This ensures that all meals are of appropriate quality for the hotel guests.

On December 31, the following items were delivered:

Item		Unit Cost		Net Realizable Value
39 chicken dinners		$7		$14
35 beef dinners		$6		$15
76 frozen vegetable servings		$1		$2
76 units of fresh fruit		$1		$2
92 desserts		$3		$5

The invoice for the food delivery on December 31 included an additional delivery charge of $0.10 per item, totalling $31.80.

On December 31, an ice storm resulted in a loss of electricity to the hotel building. As a result, 18 chicken and 11 beef dinners thawed and were unusable.

The hotel also maintains an inventory of white terry cloth bathrobes and towels that are available for sale to its clients. At December 31, the following information is available:

Product		Quantity		Cost/Unit		Selling Price/Unit
Bathrobes, assorted sizes		41		$50.50		$88.00
Towels, extra-large		28		$18.30		$17.00*
Towels, large		29		$17.00		$29.00

*The extra-large towels are no longer popular and management has decided to discontinue them. It offers the hotel staff a 20% commission for all extra-large towels they sell at the sale price of $17.00.

4.

Investments

On December 1, PHL purchased a $106,000, 90-day Canadian government treasury bill for $103,921 to yield 8%.

During the year, PHL purchased 30% of the shares in Western Hotel Company, a company that owns a similar hotel property in a nearby city, for $5 million, a price corresponding to 30% of its book value. Subsequently, Western Hotel Company paid a dividend totalling $106,000 and earned income of $265,000. The fair value of the common shares as at December 31 was $5,406,000.

PHL also purchased common shares of Dufort Corp. as a temporary investment for $50,880. At the end of the year, these shares had a fair value of $49,820, according to the December 31 closing price on the Toronto Stock Exchange. A dividend of $530 was received during the year.

Instructions

Part A: Cash and investments presentation

Determine whether each financial instrument should be presented in the cash and cash equivalents or investments section of the statement of financial position. Place an X in the appropriate column in the table below.

Financial Instrument	Cash and Cash Equivalents	Investments
Euro currency
Bank account
90-day Canadian government treasury bill
Western Hotel Company common shares
Dufort Corp. common shares

Part B: Bank reconciliation

Prepare a bank reconciliation for PHL as at December 31 to determine the adjusted cash balance per the general ledger. Enter the description and amount of any adjustment in the table below.

	(Description)	($)
Cash per bank account:
Add:
Deduct:
Adjusted cash per general ledger:

Part C: Inventory carrying values

Calculate the carrying value of each inventory item as at December 31. Identify any inventory that requires a writedown. Enter the carrying value in the appropriate space in the table below. Place an X in the space for any inventory that requires a writedown.

	Carrying Value ($)	Writedown Required
Food:
Chicken dinners
Beef dinners
Vegetable servings
Fruit servings
Desserts
Bathrobes and towels:
Bathrobes
Towels, extra-large
Towels, large

Part D: Accounts receivable

Calculate the accounts receivable, allowance for doubtful accounts, and bad debt balances as at December 31. Enter the dollar amount for each item in the appropriate space in the table below.

	Amount as at December 31
Accounts receivable
Allowance for doubtful accounts
Bad debt expense