Need help with preparing the report, mainly notes 1, 3 and 9!

Today is March 15, 2022. Your partner called you, CPA, into her office to discuss a new, special engagement. Your firm has been engaged to assist a group of investors, led by John Keystone, with a business acquisition. John Keystone is interested in buying the Barrie Bulldogs Inc. (BBI), a wholly owned subsidiary of City Entertainment and Sports (CES). BBI owns a minor-league professional rugby team. The rugby team has been rather successful winning three championships in its first five years in the league. The partner tells you that she and Mr. Keystone have scheduled a meeting with the rest of the investors next week to finalize an offer to be presented to CES for the purchase of BBI's shares. At an initial meeting a week ago, Mr. Keystone dropped off excerpts from the purchase price calculation agreement (Exhibit I) and financial statements (Exhibit II). Subsequent to the meeting, the partner, with the consent of CES and the investor group, met with the management and staff of BBI. Notes from both meetings are collected in Exhibit III. Based on the financial statements obtained, and the purchase price equation, Mr. Keystone said to your partner: "CES's management expressed that it is expecting to receive between approximately $1.4 to 1.8 million for BBI. I'm not sure whether the investor group will continue to run BBI the same way that CES did, but CES's management used the 2021 financial statements as a starting point in determining their expected price:" The partner tells you: "Our primary task is to review the financial statements of BBI to determine compliance with ASPE. Based on the information we have obtained thus far, please prepare a report outlining any ASPE issues and a recommended treatment, along with any reasonable alternative treatments where applicable. Because of the relatively small size of BBI, its financial statements have never been audited. Secondly, can you please calculate purchase price based on the ASPE adjusted net income that Mr. Keystone can use in the meeting next week:" Required EXHIBIT I PURCHASE PRICE AGREEMENT EXCERPTS The final purchase price is to be determined based on using an earnings multiple approach, whereby the total net income for the most recent fiscal year is multiplied by the earnings multiple as follows: Net Income X Earnings Multiple = Purchase Price Earnings Multiple An earnings multiple of between 3 and 4 is common for companies owning minor-league professional baseball teams. Net Income Net income must be determined based on Generally Accepted Accounting Principles in accordance with ASPE standard. BBI INC. EXCERPT FROM THE INCOME STATEMENT For the year ended December 31 (Unaudited) EXHIBIT III NOTES FROM MEETING WITH JOHN KEYSTONE AND EMPLOYEES AT BBI INC. 1. In 2013, CES purchased a minor-league professional rugby franchise in Barrie and paid $800,000 in initial league fees. The rugby operations were immediately incorporated in a new subsidiary company, BBI Inc. Recently, CES made a decision to return to its core business of major league sports and to sell BBI. BBI's year end is the same as CES's year end, December 31. 2. The rugby season runs from September to April, with the team playing 80 games- 40 at home and 40 away. Attendance in the first part of the season is low but, by January, attendance for home games is usually close to capacity of 6,000 seats. About half of the home games are played by the end of December of each year. 3. All tickets are general admission tickets, with single game seats selling for $6.00. Season ticket holders, which number around 2,000, pay $200 for the 40 home games in August and September. Any season tickets not used cannot be transferred for another game, no refunds are offered, and the tickets are non-transferable and non-refundable. Jonathan Chan, the team's general manager, has instructed the bookkeeper to record all season ticket sales as revenue when the customer pays for the tickets. Play-off tickets are sold apart from the season ticket package, although season ticket holders are given the right of first refusal to purchase playoff tickets for their seats. 4. Jonathan describes his relationship with advertisers as excellent, although he admits that the approaches he uses are sometimes unique. Some of the advertising revenue comes in through the exchange of products or services instead of cash. Advertising revenue is generated through the sale of space on the rink boards, displays on the floor surface, and announcements during the game, etc. For example, one advertiser, Premier Technology, supplied I5 laptops, with a carrying value of $10,000, on the condition that they be given away at specifically scheduled home games during the season, in exchange for an advertising sign on the boards behind the goalie net. The fair value of the advertising given was $15,000. Jonathan credited $15,000 of revenue and debited $15,000 prepaid advertising on this sale when the transfer took place. As at December 31 , there were 10 laptops still on hand. The laptops are expensed, and the prepaid advertising reduced, as they are given away. 5. BBI's largest advertiser is CES. It has the premier advertising space in centre floor. CES pays $60,000 per year for this advertising space, which is about $40,000 more than what the space would cost in other minor-league arenas. BBI records advertising revenue each year in the amount of $60,000. 6. Jonathan believes that the value of the franchise has increased over the years that BBI has owned the team. Consequently, Jonathan has asked the bookkeeper to increase the value of the franchise on the balance sheet each year to reflect his estimate of the increase in market value. The journal entry's credit has been posted to gain on intangible asset. 5 7. On January 1,2020, BBI issued 3,000 redeemable and retractable preferred shares at a value of $1 per share. The shares are redeemable by BBI at any time after January 2024. The shares are retractable for the original $1 per share at the discretion of the holder at any time up to January 2024 , after which the retractable feature expires. The preferred shares require the payment of a mandatory $2 per share during the retraction period, after which, the dividends become non-cumulative and are paid at the discretion of the board only. 8. The arena where the team plays is owned by the city and leased by BBI. The lease expires on June 30,2024 . BBI is responsible for all operating expenses, including maintaining the floor surface and all equipment necessary to maintain the arena and parking lot. While the lease payments are relatively low (\$100,000 per year), the facility desperately needed about $250,000 in renovations, particularly the concession stands and the home and visitors dressing rooms. BBI had been pushing the city to do the renovations for several years, but the city was reluctant to spend the money and had not done anything. Jonathan got tired of waiting. On July 1, 2021, he took it upon himself to spend about $150,000 on improvements, which have been set up as a receivable. Since the work should have been done by the city, he is now battling with the city to recoup this 'receivable' from them. He is frustrated because there is still another $100,000 of upgrades to go. If the arena is not completely upgraded, Jonathan is fearful the league will step in and force the franchise to move to another city. It is unlikely that the city will reimburse BBI for any incurred or future upgrade costs. BBI has temporary investments that are being carried at cost. Jonathan has confessed that he has not adopted the accounting standards for financial instruments. The temporary investments are being carried at cost on the financial statements. The market value of the investments are as follows: Today is March 15, 2022. Your partner called you, CPA, into her office to discuss a new, special engagement. Your firm has been engaged to assist a group of investors, led by John Keystone, with a business acquisition. John Keystone is interested in buying the Barrie Bulldogs Inc. (BBI), a wholly owned subsidiary of City Entertainment and Sports (CES). BBI owns a minor-league professional rugby team. The rugby team has been rather successful winning three championships in its first five years in the league. The partner tells you that she and Mr. Keystone have scheduled a meeting with the rest of the investors next week to finalize an offer to be presented to CES for the purchase of BBI's shares. At an initial meeting a week ago, Mr. Keystone dropped off excerpts from the purchase price calculation agreement (Exhibit I) and financial statements (Exhibit II). Subsequent to the meeting, the partner, with the consent of CES and the investor group, met with the management and staff of BBI. Notes from both meetings are collected in Exhibit III. Based on the financial statements obtained, and the purchase price equation, Mr. Keystone said to your partner: "CES's management expressed that it is expecting to receive between approximately $1.4 to 1.8 million for BBI. I'm not sure whether the investor group will continue to run BBI the same way that CES did, but CES's management used the 2021 financial statements as a starting point in determining their expected price:" The partner tells you: "Our primary task is to review the financial statements of BBI to determine compliance with ASPE. Based on the information we have obtained thus far, please prepare a report outlining any ASPE issues and a recommended treatment, along with any reasonable alternative treatments where applicable. Because of the relatively small size of BBI, its financial statements have never been audited. Secondly, can you please calculate purchase price based on the ASPE adjusted net income that Mr. Keystone can use in the meeting next week:" Required EXHIBIT I PURCHASE PRICE AGREEMENT EXCERPTS The final purchase price is to be determined based on using an earnings multiple approach, whereby the total net income for the most recent fiscal year is multiplied by the earnings multiple as follows: Net Income X Earnings Multiple = Purchase Price Earnings Multiple An earnings multiple of between 3 and 4 is common for companies owning minor-league professional baseball teams. Net Income Net income must be determined based on Generally Accepted Accounting Principles in accordance with ASPE standard. BBI INC. EXCERPT FROM THE INCOME STATEMENT For the year ended December 31 (Unaudited) EXHIBIT III NOTES FROM MEETING WITH JOHN KEYSTONE AND EMPLOYEES AT BBI INC. 1. In 2013, CES purchased a minor-league professional rugby franchise in Barrie and paid $800,000 in initial league fees. The rugby operations were immediately incorporated in a new subsidiary company, BBI Inc. Recently, CES made a decision to return to its core business of major league sports and to sell BBI. BBI's year end is the same as CES's year end, December 31. 2. The rugby season runs from September to April, with the team playing 80 games- 40 at home and 40 away. Attendance in the first part of the season is low but, by January, attendance for home games is usually close to capacity of 6,000 seats. About half of the home games are played by the end of December of each year. 3. All tickets are general admission tickets, with single game seats selling for $6.00. Season ticket holders, which number around 2,000, pay $200 for the 40 home games in August and September. Any season tickets not used cannot be transferred for another game, no refunds are offered, and the tickets are non-transferable and non-refundable. Jonathan Chan, the team's general manager, has instructed the bookkeeper to record all season ticket sales as revenue when the customer pays for the tickets. Play-off tickets are sold apart from the season ticket package, although season ticket holders are given the right of first refusal to purchase playoff tickets for their seats. 4. Jonathan describes his relationship with advertisers as excellent, although he admits that the approaches he uses are sometimes unique. Some of the advertising revenue comes in through the exchange of products or services instead of cash. Advertising revenue is generated through the sale of space on the rink boards, displays on the floor surface, and announcements during the game, etc. For example, one advertiser, Premier Technology, supplied I5 laptops, with a carrying value of $10,000, on the condition that they be given away at specifically scheduled home games during the season, in exchange for an advertising sign on the boards behind the goalie net. The fair value of the advertising given was $15,000. Jonathan credited $15,000 of revenue and debited $15,000 prepaid advertising on this sale when the transfer took place. As at December 31 , there were 10 laptops still on hand. The laptops are expensed, and the prepaid advertising reduced, as they are given away. 5. BBI's largest advertiser is CES. It has the premier advertising space in centre floor. CES pays $60,000 per year for this advertising space, which is about $40,000 more than what the space would cost in other minor-league arenas. BBI records advertising revenue each year in the amount of $60,000. 6. Jonathan believes that the value of the franchise has increased over the years that BBI has owned the team. Consequently, Jonathan has asked the bookkeeper to increase the value of the franchise on the balance sheet each year to reflect his estimate of the increase in market value. The journal entry's credit has been posted to gain on intangible asset. 5 7. On January 1,2020, BBI issued 3,000 redeemable and retractable preferred shares at a value of $1 per share. The shares are redeemable by BBI at any time after January 2024. The shares are retractable for the original $1 per share at the discretion of the holder at any time up to January 2024 , after which the retractable feature expires. The preferred shares require the payment of a mandatory $2 per share during the retraction period, after which, the dividends become non-cumulative and are paid at the discretion of the board only. 8. The arena where the team plays is owned by the city and leased by BBI. The lease expires on June 30,2024 . BBI is responsible for all operating expenses, including maintaining the floor surface and all equipment necessary to maintain the arena and parking lot. While the lease payments are relatively low (\$100,000 per year), the facility desperately needed about $250,000 in renovations, particularly the concession stands and the home and visitors dressing rooms. BBI had been pushing the city to do the renovations for several years, but the city was reluctant to spend the money and had not done anything. Jonathan got tired of waiting. On July 1, 2021, he took it upon himself to spend about $150,000 on improvements, which have been set up as a receivable. Since the work should have been done by the city, he is now battling with the city to recoup this 'receivable' from them. He is frustrated because there is still another $100,000 of upgrades to go. If the arena is not completely upgraded, Jonathan is fearful the league will step in and force the franchise to move to another city. It is unlikely that the city will reimburse BBI for any incurred or future upgrade costs. BBI has temporary investments that are being carried at cost. Jonathan has confessed that he has not adopted the accounting standards for financial instruments. The temporary investments are being carried at cost on the financial statements. The market value of the investments are as follows