Question:

You should start with an assessment of the situation including consideration of the major users of the financial statements and their needs. Then identify accounting issues and analyze each one, determining the appropriate treatment and journal entries. Remember to draw conclusions after analyzing each issue.

RRR Company RRR Company sells servers. A server is a piece of computer hardware or software that provides functionality for other programs or devices, called clients 1 You, Tony Kani, have been hired as a full-time accountant, reporting to the controller of RRR Company, Marin Saviolini. RRR Company has adopted IFRS for financial reporting purposes but is not a public company. The company is owned by Ratish Harmoni, the original founder and two friends Meryl Gold and Yukari Sulim. The senior management team does not consist of any of the owners. The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) both have their compensation tied by company performance since they are awarded a bonus based on non-consolidated financial statement results. If revenues exceed a $30M threshold each financial year, a bonus payout is computed and paid out. The draft financial statements reflect revenues at $37.7M. Therefore, the CEO and CFO are looking forward to receiving their 10% bonus for the December 31, 2021, yearend. RRR Companys total debt at yearend is $750,000 at an annual interest rate of 8%. It is now January 14, 2022, and the 2021 yearend financial statements are being finalized. You have settled into your new role and the controller asked you to analyze transactions, discuss financial reporting treatment and provide journal entries for several issues and summarize in a professional report. All the information you require for your analysis has been provided in an email received by the controller below.

Given Information:

Two months ago, RRR purchased 40% of the outstanding voting shares of Heplun Incorporated, a public company specializing in server distribution. Heplun is a fast growing business, engaged in extensive research and development. Given RRRs expertise, Heplun pays RRR a set fee, on a quarterly basis, for strategic guidance on R&D initiatives. The two companies have an agreement that RRR must approve all new major R&D projects that Heplun engages in. Heplun recently expressed to RRR concerns over the stability of its financial policies and the desire to gain more consistency to enhance the value of the company for stakeholders. RRR agreed to provide the necessary direction to Heplun for an additional monthly fee. RRR is allowed one board seat on Hepluns board of directors; the other 11 board members are not from RRR. The remaining 60% of Hepluns shares are held by the general public with no individual shareholder owning more than 1%. RRR needs to find an appropriate way to record the investment in Heplun