SINGH SOLUTIONS INC.

Singh Solutions Inc. $($SSI$)$ is an Ontario$-$based manufacturing business that specializes in the production of fire and soundproofing

insulation. The company holds public$-$listed debt, and the family of its founder, Jasmeet Singh, retains control through specialized$-$voting

shares. SSI undertook modernization of its production facilities during fiscal year $20$X$4.$ As part of the modernization process, the

following events have occurred:

Production equipment has been replaced by newer systems. The old equipment will be sold if a buyer can be found. The company has

not yet identified a method for finding a likely buyer for the equipment. At the time its use was discontinued, the equipment had a

carrying value of $$2,500,000.$ SSI's production manager estimates that it could be sold for about half that price, at best.

The company has discontinued using a small building that has housed one part of a production process. Since the building is on SSI's

property, among the company's other buildings, it is not feasible to sell or rent it to an outside organization. However, it is quite possible

that SSI will find a use for it in some future year. The building originally cost $$4,800,000$ to construct $10$ years ago. SSI continues to

depreciate the asset on a straight$-$line basis over $30$ years.

A warehousing conveyor system is being replaced. A buyer for the old system, including supplies and spare parts, is actively being sought

so that it can be dismantled to make room for the new system. The warehousing manager estimates that the cost of dismantling the

system will be about $$250,000.$ The buyer will be responsible for installation. It is expected that the buyer will cover the cost of shipping,

although the relative cost of shipping $($depending on the distance to the buyer's facilities$)$ will have an impact on the equipment's

realizable value. The equipment has a carrying value on SSI's books of $$2,600,000$; SSI is asking $$2,000,000$ for the equipment, which is

less than the $$2,500,000$ value estimated by the company that is supplying SSI's new conveyor system.

SSI has decided that its production and sales for the Eastern Canada area would be more efficient and effective if the company

transferred all of its assets in that region to Irving Corp., an unrelated Halifax$-$based company. SSI has negotiated to sell the assets to

Irving for $$1,250,000,$ effective $1$ December $20$X$4.$ The equipment's current book value is $$900,000.$ Effective $2$ January $20$X$5,$ Irving

will produce SSI's products and maintain the inventory. It will manage the salesforce for the eastern region, although all sales and

accounts receivable will continue to be invoiced and collected by SSI. SSI will reimburse Irving Corp. for the cost of production and

direct sales expense plus $50\%$ of the gross margin.

The former employees in the Eastern Canada division were offered a choice of moving to the new Halifax owner or receiving six months

of severance pay conditional on a promise not to seek employment from the new owner for at least one year. A survey of the affected

employees indicated that $60\%$ will elect to accept a transfer. The cost of severance pay for the other $40\%$ is estimated to be $$550,000,$

none of which will be paid out until after the end of the current fiscal year.

SSI's general manager, Lindsey Adroit, is uncertain about how the financial aspects of these changes will affect the company's financial

statements. The company has a substantial line of credit with the bank, but it is fully drawn upon, and the manager worries that the bank

may reduce the credit line if the reorganization will have adverse effects on SSI's financial statements.

You have recently been given a summer internship in SSI's general accounting department. The manager is aware that you are

enrolled in some higher$-$level accounting courses and would like you to prepare a report in which you summarize the reporting

consequences of the company's reorganization activities.

Required:

Explain fully how each of these events should be accounted for by SSI. What will be the impact on SSI's financial statements for $20$X$4?$ As

much as possible, specify the numerical effect on both the income statement and the SFP$.$