Quality Cabinets Inc (Quality) manufactures custom kitchen cabinets from its location in Squamish, B C The cabinets are then sold to contractors who install them in kitchens Bruce MacDonald is the owner and has approached you, a CPA with a local CPA firm, to advise on some accounting issues that arose during the year and to help prepare the corporate tax returns It is January 31, 2020 Task 1 Bruce has asked for an analysis of the accounting issues described in Appendix I Quality reports its financial statements in accordance with accounting standards for private enterprises (ASPE) Appendix I Description of accounting issues Quality entered into a leasing agreement with the provincial government at the beginning of fiscal 2019 Quality was granted access to the timber resources from a parcel of province owned land for a period of five years Quality commenced harvesting the timber right away and as of year end had harvested 10 of the land A condition of this agreement is that Quality replant trees at the end of the five year lease agreement Quality estimates that it will cost $500,000 to reforest the full plot at the end of five years Eight percent is the appropriate discount rate to reflect this transaction This obligation has not been recorded in the financial statements This lease has already been analyzed and is being properly treated as an operating lease in accordance with ASPE 3065 On February 1, 2019, Quality paid $400,000 for a 25 interest in the common shares of Hinge Buddy Inc (HBI) HBI is one of Qualitys main suppliers of kitchen hardware Qualitys board was very keen to acquire HBI shares as it was viewed as a wise strategic move The CFO and sales manager for Quality have been appointed to the board of directors of HBI The remaining HBI shares are held by the founder and president of HBI The journal entry recorded related to this acquisition was Investment in HBI 400,000 Cash 400,000 HBI has a December 31 year end and reported net income of $1,400,000 for 2019, which is its typical profit level Bruce is not sure if this investment is being accounted for appropriately He would like to account for the investment in a way that makes his financial statements look good

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Quality Cabinets Inc. (Quality) manufactures custom kitchen cabinets from its location in Squamish, B.C. The cabinets are then sold to contractors who install them in

Quality Cabinets Inc. (Quality) manufactures custom kitchen cabinets from its location in Squamish, B.C. The cabinets are then sold to contractors who install them in kitchens. Bruce MacDonald is the owner and has approached you, a CPA with a local CPA firm, to advise on some accounting issues that arose during the year and to help prepare the corporate tax returns.

It is January 31, 2020.

Task #1

Bruce has asked for an analysis of the accounting issues described in Appendix I. Quality reports its financial statements in accordance with accounting standards for private enterprises (ASPE).

Appendix I Description of accounting issues

Quality entered into a leasing agreement with the provincial government at the beginning of fiscal 2019. Quality was granted access to the timber resources from a parcel of province-owned land for a period of five years. Quality commenced harvesting the timber right away and as of year end had harvested 10% of the land. A condition of this agreement is that Quality replant trees at the end of the five-year lease agreement. Quality estimates that it will cost $500,000 to reforest the full plot at the end of five years. Eight percent is the appropriate discount rate to reflect this transaction. This obligation has not been recorded in the financial statements.This lease has already been analyzed and is being properly treated as an operating lease in accordance with ASPE 3065.
On February 1, 2019, Quality paid $400,000 for a 25% interest in the common shares of Hinge Buddy Inc. (HBI). HBI is one of Qualitys main suppliers of kitchen hardware. Qualitys board was very keen to acquire HBI shares as it was viewed as a wise strategic move. The CFO and sales manager for Quality have been appointed to the board of directors of HBI. The remaining HBI shares are held by the founder and president of HBI. The journal entry recorded related to this acquisition was:

Investment in HBI 400,000

Cash 400,000

HBI has a December 31 year end and reported net income of $1,400,000 for 2019, which is its typical profit level. Bruce is not sure if this investment is being accounted for appropriately. He would like to account for the investment in a way that makes his financial statements look good.