Algonquin Outfitters In order to complete your case analysis successfully, you should consider




• identifying the role you are playing,
assessing the financial reporting landscape considering the user needs, constraints, and
business environment,
identifying the issues,
analyzing the issues (qualitatively and quantitatively), and
providing a recommendation for each issue identified in the case. Background
You are an Analyst for the professional service firm, BUSI 1043 LLP. Your firm specializes in
providing a wide variety of internal business solutions for different clients. Since you enjoyed your
time in Muskoka compiling the Financial Statements for Henrietta’s Pine Bakery, the Senior Manager
from your previous engagement gave you another northern Ontario client, Algonquin Outfitters.
Additional Information
Since 1961, Algonquin Outfitters (AO) has been providing outdoor fun and gear for everyone from
families to back-country adventurers. The family of stores in Algonquin Park and Muskoka has a
range of equipment including outerwear and casual wear, mountain and road bikes, canoes, kayaks,
wakeboards and waterskis, snowboards, alpine and nordic skis, and snowshoes. More than just
canoe trips, day hiking trips, and gear outfitting rentals they have grown in the 50 + years to be
Muskoka’s destination for great outdoor gear, ski and snowboard service shop, bike shop, and all
your other Algonquin & Muskoka adventure service and rental needs.
Algonquin Outfitters follows the Accounting Standards for Private Enterprises. Despite its revenues,
AO operates with few administrative staff currently employing 12 individuals in addition to the owner
who is there every day.
The owner is considering expanding his operations into the Haliburton Highlands. In order to do so
he will have to look into financing options. He is contemplating two debt options: traditional bank
financing or bonds. He is also considering selling some of his common shares to five of his friends
and relatives. He is unsure of how these options would impact him and the current organization of
his company.
In December of this year, one of AO’s trucks carrying bike and ski lubrication was in an accident.
The substance spilled into a local river contaminating the water supply. AO’s layers have stated that
the local residents have filed a lawsuit for $2 million. They expect that AO will be found guilty but the
settlement will be between $1.0 million and $1.8 million. AO has let its insurance policy expire and
therefore does not have any coverage.
On December 31, four of AO’s trucks were loaded with customer freight and sitting at AO’s loading
docks. The goods were delivered to the customers on January 5th and 6th respectively. The revenue
of $80,000 was recorded in the books on December 31st.
The owner knows about the importance of internal controls but believes he needs a refresher. He
had an individual from purchasing leave earlier this year and is now using the accounts payable
person who also prepares the cheques to take care of all purchases. He is beginning to think that this is a good idea as it would save one salary. On the other hand, he does want to maintain controls
and is interested in eliminating all potential problems. He would like your recommendations about
how he should deal with this.
AO purchased equipment on January 1 five years ago for $80,000 and estimated an $8,000 salvage
value at the end of the equipment’s 10-year useful life. On March 31st of this year, the equipment was
sold for $21,000. The last entry to record depreciation was at December 21st of the prior year. No
entries for the sale have been made yet.
The year end for AO is December 31st. It is now April 20th and you have been asked to provide a
memo to your Senior Manager that can be used as the basis for discussion with the owner that
addresses the issues that concern you and the owner. You must address all of the issues in depth
and provide recommendations on how to account for them.
Prepare the memo.