Case #1 - Entertainment Plus Inc. Entertainment Plus Inc....

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Entertainment Plus Inc. Entertainment Plus Inc. (EPI) is a private corporation that operates retail stores throughout Ontario which sell home electronics. EPI is owned 100% by Spencer Hewitt, the company’s founder and Chief Executive Officer. Spencer worked in sales and product repairs in a national electronics retailer for several years before opening his first EPI store. EPI originally specialized in televisions and home theatre systems, and over the years it has evolved to provide a full range of home electronics including computers, handheld multimedia devices and gaming systems. In late November 2010, Spencer approached EPI’s bank to renew its line of credit. The bank expressed concern over EPI’s declining profitability, but agreed to renew the line of credit if certain conditions were met. Specifically, EPI was required to hire a qualified controller with a professional accounting designation and submit unqualified audited financial statements prepared in accordance with Canadian GAAP to the bank 60 days after each year end beginning with the December 31, 2010 year end. Additionally, EPI is required to maintain a minimum current ratio of 1.1:1 and a maximum leverage ratio of 60% (calculated as total liabilities over total assets) or the bank reserves the right to call the loan. It is now January 7, 2011 and you have recently been hired as the controller of EPI. In your first meeting with Spencer, he provided you with a copy of the draft financial statements for the year ended December 31, 2010 (Exhibit I). The financial statements have always been prepared by a part-time bookkeeper, and you also met with the bookkeeper to discuss accounting policies and significant transactions that were undertaken during the year. Notes from your meeting are included in Exhibit II. Spencer has expressed concern over the preparation of the financial statements as the bookkeeper
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This note was uploaded on 12/18/2011 for the course BUSINESS 450 taught by Professor Smith during the Winter '10 term at Ryerson.

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Case #1 - Entertainment Plus Inc. Entertainment Plus Inc....

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