Schulich School of Business, York University
ACTG 2010 (Winter 2014)
Assignment #2
COOKIE MONSTER LIMITED
Cookie Monster Limited (CML) operates a chain of high-end cookie stores located in and around the greater Toronto area. CML is best known for their decadent organic speciality cookies.
On October 1, 20X2, Betty Cooker, a professional chef, purchased CML from the original owner. Betty believed the organic cookie business had strong growth potential and was a good fit with her culinary background.
Having exhausted her own savings to purchase the shares of CML, Betty approached an international bank, headquartered in Toronto, Canada, to obtain financing to open two additional stores. The bank has agreed to provide a continuous operating line of credit to CML based on
60% of total current assets. The bank agreement requires that CML submit, for the bank’s review, annual audited financial statements prepared in accordance with acceptable accounting practices. CML has a September 30th year-end.
As a result, in September 20X3, Betty approached your consulting firm, Shred & Shred LLP
(S&S) for assistance in the selection of appropriate accounting policies. You have been assigned to this engagement.
It is now October 4, 20X3 and you are meeting with the S&S engagement partner, Sandra
Goldman, to discuss the new engagement.
Sandra begins, “Betty is unsophisticated when it comes to financial matters. She relies entirely on the bookkeeper to prepare the financial statements and is counting on us to let her know as soon as possible of any issues we discover...”
To get you started, Sandra provides you notes from her discussion with CML’s bookkeeper
(Exhibit A).
Required:
Prepare a report to Betty Cooker outlining any accounting issues you discover, analysis of those issues, and your recommended solution(s). Be specific and ensure to support your analysis.
Schulich School of Business, York University
ACTG 2010 (Winter 2014)
Assignment #2
Exhibit A – Discussion Notes
On January 3, 20X3, CML lent $131,000 to Mark Anderson, a loyal employee. Mark was facing financial difficulty and Betty wanted to help him. Mark promised to pay back the money within a month but unfortunately has disappeared and has not been heard from for months. Betty has hired a private investigator that is confident he will be able to locate Mark.
As of year-end, $131,000 is recorded as a net account receivable from Mark.
As part of new safety legislation, CML was required to install additional fire detectors in all stores at a total cost of $300,000. Betty is extremely upset about having to incur such costs.
She was overheard saying – “Customers do not care about fire detectors, they care about cookies. These new fire detectors will not help me attract nor keep more customers – what a waste of money…” CML’s bookkeeper expensed the $300,000.
As if Betty did not have enough troubles on her hands, one of her stores became the victim of theft on March 1, 20X3. The thieves stole much of the inventory from the store. As of the last inventory count on September 30, 20X2, the store had $20,000 worth of
