Today is March 15, 2022. Your partner called you, CPA, into her office to discuss a new, special engagement. Your firm has been engaged to assist a group of investors, led by John Keystone, with a business acquisition. John Keystone is interested in buying Barrie Bulldogs Inc. (BBI), a wholly owned subsidiary of City Entertainment and Sports (CES). BBI owns a minor-league professional rugby team. The rugby team has been rather successful winning three championships in its first five years in the league.

The partner tells you that she and Mr. Keystone have scheduled a meeting with the rest of the investors next week to finalize an offer to be presented to CES for the purchase of BBI's shares. At an initial meeting a week ago, Mr. Keystone dropped off excerpts from the purchase price calculation agreement (Exhibit I) and financial statements (Exhibit II). Subsequent to the meeting, the partner, with the consent of CES and the investor group, met with the management and staff of BBI. Notes from both meetings are collected in Exhibit III. Based on the financial statements obtained, and the purchase price equation, Mr. Keystone said to your partner: "CES's management expressed that it is expecting to receive between approximately $1.4 to 1.8 million for BBI. I'm not sure whether the investor group will continue to run BBI the same way that CES did, but CES's management used the 2021 financial statements as a starting point in determining their expected price:”

The partner tells you: "Our primary task is to review the financial statements of BBI to determine compliance with ASPE. Based on the information we have obtained thus far, please prepare a report outlining any ASPE issues and a recommended treatment, along with any reasonable alternative treatments where applicable. Because of the relatively small size of BBI, its financial statements have never been audited. Secondly, can you please calculate purchase price based on the ASPE adjusted net income that Mr. Keystone can use in the meeting next week:”

Prepare the report for the partner.

NOTES FROM MEETING WITH JOHN KEYSTONE AND EMPLOYEES AT BBI INC.

1. The rugby season runs from September to April, with the team playing 80 games-40 at home and 40 away. Attendance in the first part of the season is low but, by January, attendance for home games is usually close to the capacity of 6,000 seats. About half of the home games are played by the end of December of each year.

2. Jonathan describes his relationship with advertisers as excellent, although he admits that the approaches he uses are sometimes unique. Some of the advertising revenue comes in through the exchange of products or services instead of cash. Advertising revenue is generated through the sale of space on the rink boards, displays on the floor surface, announcements during the game, etc.

3. Jonathan believes that the value of the franchise has increased over the years that BBI has owned the team. Consequently, Jonathan has asked the bookkeeper to increase the value of the franchise on the balance sheet each year to reflect his estimate of the increase in market value. The journal entry's credit has been posted to gain on intangible assets.

4. On January 1, 2020, BBI issued 3,000 redeemable and retractable preferred shares at a value of $1 per share. The shares are redeemable by BBI at any time after January 2024. The shares are retractable for the original $1 per share at the discretion of the holder at any time up to January 2024, after which the retractable feature expires. The preferred shares require the payment of a mandatory $2 per share during the retraction period, after which, the dividends become non-cumulative and are paid at the discretion of the board only.

5. BBI has temporary investments that are being carried at cost. Jonathan has confessed that he has not adopted the accounting standards for financial instruments. The temporary investments are being carried at cost on the financial statements. The market value of the investments.