Douglas Dcor Company (DDC) is a private decoration company that has been in business for over 25

Douglas Décor Company (DDC) is a private decoration company that has been in business for over 25 years in the Montreal area. Two brothers, Doug and Dez, established the company and have made it very profitable over the years. As they are approaching retirement, Doug and Dez have decided to sell the company. A potential buyer of the company, Perfect Decorations Inc. (PDI), has approached them about the purchase and has asked Doug and Dez for DDC’s financial statements to evaluate firm performance over the years. PDI is a publicly accountable enterprise based in Calgary that is looking to expand into the Montreal market. The management at PDI believes the DDC acquisition presents a great opportunity for the company.
Dez has been responsible for the bookkeeping of the company. He had little accounting training in school, but believed it was enough to account for the company’s transactions. DDC submitted the financial reports to PDI, and after close review PDI was very unhappy with the financial reports presented. They noticed the following problems:

• The transactions were recorded on a cash basis.
• There was no balance sheet, income statement, or cash flow statement; there was only a journal of transactions for the year and a summary of sales and expenses.

Since PDI could not reliably value DDC, they decided not to pursue the acquisition of the company.

Required:
a. What types of information did PDI require when reviewing the financial statements? Did DDC’s financial reports fulfill those requirements?
b. Should DDC have produced more sophisticated financial statements over its 25 years of operations? Explain your reasoning.
c. Suppose Doug and Dez hired you to help them assemble the financial statements. Explain to them the qualitative characteristics that will help meet the users’ information needs.
d. Suppose DDC had produced reliable financial statements under ASPE and PDI decided to purchase the company. Discuss the financial reporting effects PDI will have to deal with after the acquisition.