Term Project -
Fit Rewards
In addition to providing classes, HCC sells a variety of MMA and CrossFit merchandise at the wellness center. Nicole came up with the Idea to create a customer rewards program called "Fit Rewards". For every dollar a customer spends on HCC4s merchandise, they get one Fit Reward point added to their account. Customers can then redeem their points for selected rewards, such as: 100 Fit Reward points can be redeemed for a HCC logo hooded sweatshirt (valued at $50) and 7,500 Fit Reward points can be redeemed for a trip for two to the next Ultimate Fighting Championships (UFC) event (valued at $3,750) The point-of-sales system at HCC's gym automatically tracks the points each time a customer purchases CrossFit clothing, MMA gear and equipment or fitness/martial arts books from HCC.
Although Nicole believes the program has been very popular, to date, only 1,000 Fit Reward points have been redeemed. Nicole is positive that more people will eventually redeem their points, since the Fit Reward points do not expire. However, now Steve is wondering if they should continue the program, since so few people have taken advantage of it.
Lawsuit
In November, HCC was sued by one of their customers for physical injuries obtained as a result of attending one of HCC's CrossFit classes. The customer had never tried CrossFit before participating in HCC's most advanced CrossFit class on October 13, 2015. Since HCC does not provide any verbal or written warnings before participants take part in advance classes, the company's legal counsel estimates that it is likely that HCC will lose the lawsuit, ln addition, based on extensive research conducted by legal counsel, similar lawsuits related to similar situations in the same industry (fitness services), resulted in the business paying large settlements to the injured customer. Based on this research and initial discussions with the legal representative for the injured customer, legal counsel estimates that HCC will need to pay the full claim of $25,000.
Hard Core Corp. (HCC) was incorporated on January 1, 2015, by siblings, Nicole and Steve Neuman, to pursue a business opportunity they saw in the Alberta marketplace, HCC is a mixed martial arts (MMA) and CrossFit gym that provides a variety of martial arts and core-strength training classes for its members.
It is now January 15, 2016, and HCC has just passed its first fiscal year end on December 31, 2015. Steve and Nicole hired Smith & Smith LLP, a mid-sized professional services firm in Edmonton, to prepare financial statements for the organization as well as complete the corporate income tax return.
You, CPA, are a manager at Smith & Smith 11P, where you have been working for several years since graduating from MacEwan University with a Bachelor of Commerce degree (accounting major). You have recently been assigned as the senior accountant on the HCC file. On January 15, 2016, Rachelle Smith, the engagement partner, calls you into her office to provide details about the client, HCC, and the engagement.
"I met with Steve and Nicole a month ago and they told me about HCC's business operations. Here are my notes from that meeting (see Exhibit I). In addition, they provided me with their draft financial statements, prepared using an off-the-shelf accounting software package (see Exhibit ill). I reviewed the draft financial statements with the client and made some notes for you on the financial statements (see Exhibit).
There are several accounting issues l noted during my meeting with the clients. I would like you to look at each of the accounting issues in my notes (Exhibit I), analyze the issues and provide your recommendations on the accounting treatments to adopt, including appropriate references to the applicable accounting standards. I suspect that most of these accounting issues will require an adjustment in the financial statements. Therefore, after analyzing the issue, can you prepare the appropriate adjusting Journal entries and draft the adjusted financial statements?
In addition, the clients will require our assistance in preparing and filing their corporate income tax return. Using the information in my notes. I would like you to prepare a reconciliation of HCC's accounting net income to their taxable income, Re sure to start with HCC's corrected accounting net income from your adjusted financial statements (after the necessary accounting adjustments).
I would like to provide the client with art estimate of taxes payable for the current year. Therefore once you have calculated taxable income, apply a general corporate tax rate of 25% to determine taxes payable,"
After your meeting with Rachelle Smith, you head back to your office to read through her notes and start your work.
Required: Prepare a memo to Rachelle Smith, the engagement partner, addressing all of her requests.
Attachment:- Assignment.rar