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Solstice Fitness Co. (Solstice) is a privately-owned chain of...

Solstice Fitness Co. (Solstice) is a privately-owned chain of high-end fitness clubs offering a range of services and amenities to its members, including state-of-the-art fitness facilities, group fitness classes, and luxury spa treatments. In an effort to further expand its range of offerings, Solstice acquired 100% of the shares of Onyx Health Bar (OHB) on January 1, 2021. OHB is an oxygen and IV-drip bar offering customers flavour-enhanced oxygen and vitamin IV infusions, which have been shown to boost the immune system, reduce stress, and enhance alertness.

 

OHB's services are a perfect fit with the high-end, health-conscious image promoted by Solstice. While OHB currently has only one stand-alone location in Toronto, Solstice intends to eventually incorporate OHB-branded oxygen and IV-drip bars in all of its fitness clubs across Canada.

 

It is now February 16, 2021. You, CPA, are a senior financial analyst at Solstice, and the controller, Jennifer Lee, has asked for your help dealing with a few issues she has noted since the acquisition. Solstice and OHB are still in the process of integrating their financial reporting systems. While Solstice has established financial reporting processes and systems controls in place, Jennifer is skeptical about the manual processes in place at OHB. Both Solstice and OHB apply accounting standards for private enterprises (ASPE).Jennifer's final area of concern is with the monthly internal reporting prepared by OHB. Jennifer had asked Robyn to make summary of OHB's financial results in its first month following the acquisition. She was surprised when Robyn provided her with a page filled with several colourful visualizations (Appendix III), as this is not the type of internal reporting she is used to seeing. To save time, Jennifer has asked that you help her interpret the meaning of these images.

 

Interpret the financial results provided in Appendix III, identifying any areas of concern that should be brought to Jennifer's attention.

Appendix III

Image transcription text

Problem Appendix III OHB financial results — January 2021 Income Statement by Line Item 80,000 60,000 40,000 I I 20,000 I (20,000) Sales Cost of sales Gross profit Selling, Depreciation interest Net income general & admin expenses l12—Month average I January 2021 Expenses as a % of Sales - 12—Month Expenses as a % of Sales - January Average 2021 l Cost of sales I Cost of sales lSelling, general & admin expenses l Selling, general & admin expenses I Depreciation I Depreciation I Interest I Interest 12—Month Trend in Sales & Cost of Sales 70,000 60,000 __.—/—_ 50,000 40,000 30,000 20,000 10,000 5»? ,9? ,9? ,n? «r? ,n? :19 s? _n? ,9? on? ,0 {(0 $3: ?Q '9 30 5 $9 (.999 on $0 Q2, 30'" — Sales — Cost of sales 6/6

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