Vision Security Enterprises Vision Security Enterprises (VSE) is a home and commercial security company. The company was established in 1968 by Luigi Bruce, its sole shareholder, to provide security services in Halifax. Since its inception, VSE has grown to provide its services across all major cities in Atlantic Canada. In order to continue growing the company, Luigi has decided to expand into Ontario and Quebec. In order to facilitate the expansion, VSE is planning to become a franchiser whereby local entrepreneurs can purchase an exclusive right to be the Vision Security provider in their community. This is a significant change in strategy as VSE currently owns and operates all of the locations in Atlantic Canada. In order to help facilitate the strategic shift, Luigi hired Jason Armand early in the fiscal year as the new manager of the Ontario and Quebec region. Jason is familiar with the franchisee-franchisor relationship as he was formerly employed at a large pizza restaurant chain. Luigi is very happy with the performance of Jason thus far as 15 franchises have been opened throughout Ontario and Quebec during the year, along with five locations opened and operated by VSE. Luigi will have no problem signing Jason's bonus cheque, which is calculated as 10% of the operating income generated from the Ontario and Quebec markets. You are the controller of VSE and recently began preparing for the December 31, 2020, year-end audit. The year-end audit will require more work this year because of the company's expansion, specifically the new franchisor transactions. As you prepare for the audit, you review the preliminary income statement, as prepared by Jason, for the Ontario and Quebec segments (Exhibit I), along with information regarding various transactions that occurred during the year (Exhibit II). VSE prepares its financial statements in accordance with ASPE. Required Prepare a report that discusses the appropriate accounting treatments for the Ontario and Quebec markets. As the report will be used as part of Luigi's evaluation of Jason's performance, be sure to discuss various alternative accounting treatments. - As is standard in the franchisee industry, VSE dereloped a policy to charge an initial franchise fee and a continuing franchise fee. The initial fee of 5225,000 is paid through the following, nonrefundable payments: - The franchivee mas pay a down payment of $25,000 when the franchise agreenent is signed, Once segened, VSE will provide sigaificant assistance to help the franchisee commence operations (e.g., help select an appropriate location, train employees, develop policies and procedures, prowide legal and management assistanse), however, the franchive is responsible to pay for all of the direct costs of extablishing the new location. - A second payment of $90,000 is due ence the franchisee commences operations, It takes approximately four to five moths froa signing the franchise agrecaneat to commencing opera: tions. VSE's inohement with the franchisee largely ends when the new location commences operations. Five of the seven locaticens Oetario are open and wix of the eight focations in Quebec are open. - The final payment of $150,000 is dae within one year of operaticen conmescing. VSE does not have any experience to anes. the likelihood of a franchisce surviving its first year. - Each franchisec is rnyuired to pay $2,500 per month in a coortinuing franchise foe for VSE. The continuing franchise foe covers varioas shared costs, such as regioal advertising, software and hardware uperades, and ad boe soppon. - Jacon encouraged initial growit by peoviding a peomoticeal agreemeat with the fint three franchisen. Mhese franchiens were charged an initial franchise fee of $225,000, due upoe epening, with no conatinuing fee foe the first three years. All three franchises are epen and paid their initiat fee. These Additional Information Regarding the Ontario and Quebec Operations (Continued) franchises have been opened for a combined 10 months during the fiscal year. No continuing franchise fees were collected from the franchises that signed an agreement in April and May. - During the year, VSE opened and operates two stores in Ontario (Toronto and Ottawa), and one store in Quebec (Montreal). The locations were opened late in the fiscal year but were still able to generate sales during November and December. The Ontario locations sold 30 security systems, while the Quebec loeations sold 25 security systems. The security systems during the year were sold for the promotional price of \$5,500, which includes the hardware, installation, and a two-year monitoring contract. The promotional price was issued with the hopes of attracting new business as VSE penetrates into the new markets. The normal retail price of the hardware alone is - The following are number of months the franchisees were required to pay monthly franchise fees: $6,000, with an additional $500 for installation. Customers can opt out of the two-year monitoring contract, which will reduce the price by $750. In addition, customers who already have the hardware can purchase the monitoring services for $1,250. All systems have been instaled as of the year end. - Jason undertook a large marketing campaign in November and December 2020 with the intention of attracting new franchises and increasing awareness of VSE's service offering. The advertising blitz is going to run into January 2021. Jason believes that the benefits of the marketing program will be realized in the next year. Accordingly, he capitalized $250,000 in marketing costs as at year end in order to match the costs to sales in future periods. Alpha Classic Car Restorations John Wallace is an automotive enthusiast. He has over 25 years of experience as a mechanic for the dealership of a large car manufacturer in Oakville. John also gained experience doing minor body work and painting. Recently, John decided to retire from the car dealership and pursue his interest of restoring classic American muscle cars. Accordingly, John started Alpha Classic Cars Restoration (ACCR). John leased an industrial building and converted it into a repair and body shop. The building's land has a small parking lot that is used to showcase the restored vehicles that are for sale. Generally, John selects the classic muscle cars that ACCR will restore and then places them for sale to the general public in the lot. John also posts his vehicles to various Internet sales sites, frequents car shows, and uses the classifieds of local newspapers to market his inventory. ACCR also takes custom jobs, whereby an individual can request the car to be restored. ACCR has a December 31, 2020, year end, and just completed its first year of operations. John had a friend help him compile financial statements for the year end (draft financial statements can be found in Exhibit I). ACCR's bank requires the preparation of annual audited financial statements in accordance with IFRS (details of the loan agreement can be found in Exhibit II), and the auditors are scheduled to commence year-end work on January 18. Realizing that ACCR needs accounting assistance, John has hired you, CPA, as a consultant on December 24, 2020. Your first task is to review the draft financial statements and provide any recommendations to comply with IFRS. In addition, John required some assistance preparing a statement of cash flow. John has provided you with a file for review, which outlines all of the significant transactions that have taken place during the year (Exhibit III). Aside from the year-end statements, John would also like to know whether he will be able to pay any dividends in the current year. He has drawn a minimal salary, and is hoping to supplement his income by paying a $35,000 dividend with the current cash balance. Finally, John has asked you to provide some advice regarding the additional controls or procedures that could be implemented to improve the day-to-day operations of the company. Required John has asked you to prepare a report that discusses all of the material accounting issues (i.e., identify the issues, discuss the implications, offer altemative treatments, and provide a recommendation). Revised financial statements should be included in the report. The report should also address John's other concerns. Provide journal entries, where appropriate