accounting analysis

Project Description:

"sit-up fitness centre (sfc) is a new athletic facility, located in saskatoon, saskatchewan. sfc is owned and operated by calvin power, a former olympic gold medalist in weight-lifting. calvin decided to make his pas- sion his business by opening open a local gym. sfc has the following mission statement:
“sfc provides the residents of saskatoon the opportunity to live a healthier, happier, and longer life by providing affordable access to athletic equipment, aerobic classes, and specialized dieticians.”
mr. power borrowed $10 million from the bank in order finance the required start-up investments in working capital and capital assets. mr. power invested $2 million of his own money (that he earned through his career as a weightlifter and professional wrestler). the bank does not want the debt to equity ratio to exceed 5:1.
the first year of business has been a bit a rocky, as mr. power’s expertise is in weight training, as opposed to running a business. however, sfc was able to attract 5,000 people to purchase full memberships.
it was difficult to attract new members during the first few months of operations. in order to attract more members, mr. power implemented the following creative marketing initiatives during the middle of the year:
» power points – sfc offers its members 1 point per visit to the gym (maximum of 1 point per day). power points can be redeemed for free passes for a guest or for a free protein drink.
» initial fee return guarantee – for three months, sfc provided new members with a guarantee period whereby their initial membership fee could be returned if they decide to discontinue their membership within the first year.
» free membership challenge – members are entered into a draw every time they access the gym, and provided with a chance to win free membership fees for a year.
mr. power has come to you, badami and lusamba llp, for assistance regarding the preparation of the december 31, year-end financial statements in accordance with aspe. mr. power knows how much cash came in from memberships, but is unsure about how much revenue should be recognized. in addition, mr. power needs help understanding how the marketing initiatives impact the financial statement. additional details on the marketing initiatives can be found in exhibit i, which outlines your most recent discussion with mr. power.
prepare a report that addresses mr. power’s concerns. the partner would like you to do a good job this en- gagement as it may lead to more work, and the annual year-end audit. therefore, the partner has asked you to prepare any journal entries to record your recommended accounting treatments."
(lento 109)

lento, camillo. selected intermediate accounting cases for 70-352 accounting theory ii: 2015/2016. wiley custom select, 08/2015. vitalbook file.

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