In your audit of Canyon Outdoor Provision Company’s financial statements, the following transactions came to your...

In your audit of Canyon Outdoor Provision Company’s financial statements, the following transactions came to your attention:

1. Canyon Outdoor’s operating lease for its main store is with York Properties, which is a real estate investment firm owned by Travis Smedes. Mr. Smedes is a member of Canyon Outdoor’s board of directors.

2. One of Canyon Outdoor’s main supplies for kayaks is Hessle Boating Company. Canyon Outdoor has purchased kayaks and canoes from Hessel for the last 25 years under a long-term contract arrangement.

3. Short-term financing lines of credit are provided by Cameron Bank and Trust. Suzanne Strayhorn is the lending officer assigned to the Canyon Outdoor account. Suzanne is the wife of the largest investor of Canyon Outdoor.

4. Hillsborough Travel partners with Canyon Outdoor to provide hiding and rafting adventure vacations. The owner of Hillsborough Travel lives in the same neighborhood as the CEO of Canyon Outdoor. They are acquaintances, but not close friends.

5. The board of directors consists of serval individuals who own stock in Canyon Outdoor. At a recent board meeting, the board approved its annual dividend payable to shareholders effective June 1.

Instructions

1. Read the background information above

2. Which of the transactions listed in the Background Information would most likely be considered a related party transaction?

3. Provide in-depth reasoning regarding your decision.

Solutions

Expert Solution

Part 2

There are two transactions that would most likely be considered a related party transaction and they are as follows:

-Canyon Outdoor’s operating lease for its main store is with York Properties, which is a real estate investment firm owned by Travis Smedes. Mr. Smedes is a member of Canyon Outdoor’s board of directors.(Transaction 1)

-Short-term financing lines of credit are provided by Cameron Bank and Trust. Suzanne Strayhorn is the lending officer assigned to the Canyon Outdoor account. Suzanne is the wife of the largest investor of Canyon Outdoor. (Transaction 3)

Part 3

A related party is defined as “an affiliated company, a principle owner of the client company, or any other party with which the client deals, where one of the parties can influence the management or operating policies of the other. If the related party transactions or balances are material, then the following disclosures are necessary to get:

- the nature of the relationship or relationships,

- a description of the transaction for the period reported on, including amounts if any, and such other information deemed necessary to obtain an understanding of the effect on the financial statements,

- the dollar volume of transactions and the effects of any change in the method of establishing terms from those used in the preceding period,

- amounts due from or to related parties, and if not otherwise apparent, the terms and manner of settlement.

Considering all above essential requirements associated with the related party, it has been to include above transactions in the category of transactions most likely be considered a related party transaction.

ekkarill92 answered 1 year ago

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