ADMS 3595 Lecture Notes - Lecture 6: Tax Advisor, Cash Flow, Peter Woodward
ADMS 3595 – 2017 Summer
Group Case Project
Due Date : July 16, 2017 (11:55 pm)
Page 1
Bennett Construction Ltd. (Bennett ) was founded 10 years ago by Peter Woodward, a carpenter
and entrepreneur. Bennett is a growing construction company, building houses and doing major
renovations for residential customers throughout the greater Toronto area. Peter is the president
and sole common shareholder of the company.
Bennett approached its credit union in early 2017 to increase its long-term debt to finance the
purchase of equipment. A great deal of Bennett’s equipment had been showing the strain of
increased use and its efficiency was slipping. The credit union agreed to finance this purchase
using the new equipment as collateral but has imposed a reasonably stringent debt to equity
covenant. The credit union also requires audited financial statements. In the fall of 2017, Peter
met Lynn Morgan, a partner with Morgan and Penny, Professional Accountants LLP (MP), and
hired MP as the auditor. You work as a staff accountant at MP.
Bennett has a fiscal year-end of 31 December 2017. Prior statements have not been audited and
have been prepared solely for preparation of Bennett’s tax return. Earnings in recent years have
averaged $ 300,000. In a meeting with Peter recently, you took down the following notes
regarding certain transactions which Peter has asked you to comment on the accounting policies
that should be adopted.
1. Bennett received an order from a recurring customer, Topline, for custom built cabinets for
its new large retail store in Richmond Hill. Bennett completed the cabinets on November 30,
well ahead of the contract delivery date of December 9. Bennett had received $ 100,000
deposit for the cabinets in early October, with the balance of the contract of $ 150,000 to be
paid upon delivery and acceptance of the cabinets by Topline. In early December, Topline
notified Bennett that it could not take delivery of the cabinets until February 15, 2018 due to
unexpected delay in the opening of the company’s new store. Peter has heard a rumour that
the reason for the delay in opening was because of Topline’s inability to arrange financing
for inventory.
2. Over the years, Bennett has acquired an extensive range of machinery and equipment,
ranging from small hand-held pieces to its most costly piece of equipment, a top-of-the-line
insulation blowing machine, purchased five years ago for $ 45,000 that now has a net book
value of $ 30,000. A similar but more efficient machine will become available in February
2018. Bennett plans to replace the aging equipment when this new product comes on the
market. Peter anticipates being able to sell the existing piece of equipment for $ 10,000.
3. In March 2017, Peter spent $ 20,000 on an extensive marketing and advertising campaign to
generate additional business for Bennett. This expenditure was set up as an intangible asset.
4. Peter mentioned that a former Bennett client, Cathy Moore, is suing the company for failure
to finish the basement in his new home, which was purchased from Bennett. Despite there
being no mention of completion of a basement in the sale contract, Cathy thought all new
homes came totally finished. Bennett’s lawyer is quite certain the case will be thrown out of
court.
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Document Summary
Bennett construction ltd. (bennett ) was founded 10 years ago by peter woodward, a carpenter and entrepreneur. Bennett is a growing construction company, building houses and doing major renovations for residential customers throughout the greater toronto area. Peter is the president and sole common shareholder of the company. Bennett approached its credit union in early 2017 to increase its long-term debt to finance the purchase of equipment. A great deal of bennett"s equipment had been showing the strain of increased use and its efficiency was slipping. The credit union agreed to finance this purchase using the new equipment as collateral but has imposed a reasonably stringent debt to equity covenant. The credit union also requires audited financial statements. In the fall of 2017, peter met lynn morgan, a partner with morgan and penny, professional accountants llp (mp), and hired mp as the auditor. You work as a staff accountant at mp. Bennett has a fiscal year-end of 31 december 2017.
