West Corp (WC) is a mid-sized residential construction firm located in the Okanagan Valley of British Columbia which was founded in the early 2000s. While WC started out as a small family firm, it has grown rapidly over the past six years and now has approximately 140 employees at any one time. WC has two divisions, one which does multi-family building construction including townhouses and apartment buildings. The other division does residential renovation jobs for individual customers and has specialized in upscale kitchens and bathrooms. Because WC management believes that may take the company public in the future, financial statements are prepared using International Financial Reporting Standards. WC has never had a proper controller on staff before and just used a series of bookkeepers to prepare their internal financial information. They would then rely on their external accountant, Sherry Mann, CPA, to do numerous adjustments to the internal financial information during the preparation of WCs year-end review engagement and corporate tax return. WC management came to realize that its much more cost effective to hire a qualified accountant to prepare the internal financial information to reduce the work required from Sherry. Today is October 14, 2022 and after a series of interviews you (CPA) were hired as the new controller for WC. You have just finished your orientation and have gotten access to the accounting system. After a quick review of recent transactions, you begin a meeting with Janet Jones, WCs Chief Executive Officer and Lloyd Jones, WCs Chief Operating Officer. Janet: Welcome to the team CPA! Were happy to have you on board with WC, especially in this very busy and consequential time for the company. Weve made some very big decisions recently and we think some of them may impact our financial statements for the September 30, 2022 fiscal year end. Lloyd: Janet is right, after much soul searching, we made the decision to sell our renovation division. The board of directors approved the sale process at the end of May 2022 at their monthly meeting and the division was ready to be sold as of that date. After moving so significantly into multi-family construction the renovation division occupies an amount of management resources that cannot be justified for the thin margins. We are also having difficulty collecting some of our receivables from customers of our renovation division which was the final nail in the coffin. Heres a document with information on that division you may find helpful (Appendix I). After making a few phone calls to our contacts, we believe that weve found a buyer for the division. Its a renovation company from Alberta that wishes to expand into the Okanagan Valley. Theyre looking to have the acquisition done by the beginning of Winter 2022. Because we want the division gone, were not necessarily looking to maximize the potential return for the assets and operations. Janet: Speaking of receivables, we have always used a specific identification process for estimating our allowance for doubtful accounts. We would like to continue with that process for the 2022 fiscal year as well and required information can be found in Appendix II. Lloyd: As you may know, Janet and I own another company. We moved the bookkeeper that was working for WC to that company in preparation for your start date. Before she was moved, we asked him to prepare a list of outstanding items that he was unsure on how to deal with. Ive got that list here for you (Appendix III). Ive also got WCs statement of financial position from last year here (Appendix IV) and WCs unadjusted trial balance as at September 30, 2022 here (Appendix V). Janet: Let us know if you have any questions and good luck! Required: 1. Prepare a memo to Janet and Lloyd with the justification for any adjustments required to the draft trial balance. 2. Complete the Excel worksheet showing the opening trial balance, adjustments to each account and final trial balance after adjustments 3. Prepare a set of financial statements in good form which incorporate all adjustments required including a statement of comprehensive income, statement of changes in equity and statement of financial position. Sherry will take care of the statement of cash flows using an automated process. The group will be uploading two files (word and excel). Both files must be in Arial 12pt font, normal margins. The word file should contain your memo and be no longer than 6 pages. The excel file should contain the worksheet, financial statements and all calculations. Appendix I Renovation Division Financial Information Notes: The renovation division uses straight-line depreciation. A full year of depreciation was recorded already for fiscal 2022. It was confirmed with management of the division that there are no other balances related to the renovation division for the 2022 fiscal year. We are confident that this division will be sold at a gain based on our preliminary discussions with the buyer. Appendix II Aged Accounts Receivable Analysis Construction Division1 customer OKV Developments Government of Canada BC Housing BCAB Devcorp Renovation Division Total 0 - 30 days 782,000 239,000 1,376,000 2,397,000 31 - 60 days 898,000 526,000 1,424,000 61 - 90 days 830,000 | 83,600 913,600 90 days Total 782,000 1,245,000 3,212,000 1,902,000 83,600 1,245,000 5,979,600 Renovation Division Customer Angus Matthews* Ethan Williams Susie Katherinson? George Simons Total otes: 0 - 30 days 782,000 239,000 1,376,000 2,397,000 31 - 60 days 898,000 526,000 1,424,000 61 - 90 days 830,000 | 83,600 913,600 90 days Total 782,000 1,245,000 3,212,000 1,902,000 83,600 1,245,000 5,979,600 0-30 days 31 - 60 days 71,300 61-90 days 22,750 71,300 22,750 90+ days 4,500 22,000 56,500 83,000 Total 71,300 27,250 22,000 50,500 172,050 Notes: 1. The balances in allowance for doubtful accounts set up by Sherry for the fiscal 2021 year for the construction division were eventually collected in fiscal 2022. 2. The government of Canada has always been late in paying their bills due to the size of their bureaucracy. Amounts are usually paid at the 120 days mark. 3. $93,000 of the balance due from BC Housing is being disputed and were unsure if or when this balance will be received. 4. Mr. Matthews sent a cheque for the full amount that was received on October 2, 2022. 5. Mr. Williams sent a cheque for the full amount that was received on October 4, 2022. 6. Mr. Simons is on a payment plan and the total amount outstanding should be paid off by November 2022. 7. Susie Katherinson analysis can be found in Appendix III. Appendix III Notes from the Former Bookkeeper 1. To make things simple, I record all invoices directly into revenue. At September 30, 2022 we had future customers that had paid $200,000 in deposits for work to be complete during the 2023 fiscal year. 2. Most of our insurance policies are paid month to month to help smooth our monthly cash flows. One of our construction division insurance policies was paid in full up front and it runs from April 1 to March 31 and cost of $88,000. I expensed the full amount. 3. During the 2022 fiscal year, WC was on a principal holiday for its long-term debt, meaning no principal payments were required. Interest did accrue during the year at 7.25%, but I didnt have time to record the entry before being transferred. 4. During 2022, one of our construction customers asked us to do something we havent done before. In addition to building an apartment building, they asked us to cover the building maintenance on a separate building over a period of two years. We agreed as this helped us gain the construction portion of the contract. Construction of the building was finished by the end of the fiscal year, but the two-year maintenance contract extends to the end of June 2024. The total value of the contract was $850,000 and WCs management estimates that a similar maintenance contract would be sold for approximately $100,000 and the standalone construction would have been $750,000. We have done separate maintenance contracts as a standalone service in the past. As of now, the full $850,000 is recorded as revenue for the 2022 fiscal year. 5. A customer of ours, Ms. Katherinson, has told us that she will not be paying due to some claimed deficiencies in the renovation. We deny that the claimed deficiencies are true, but we also missed the opportunity to place a lien on Ms. Katherinsons property so we no longer have recourse. This amount was included in the allowance for doubtful accounts last year based on specific identification. 6. WC is subject to a tax rate of 25%. You will need to record the intra period tax allocation. Appendix IV Fiscal 2021 Statement of Financial Position Appendix V Unadjusted Trial Balance