Case Analysis - Since 1961, Algonquin Outfitters (AO)

Case Analysis
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, as well as winter sports equipment like snowboards, alpine
and nordic skis, and snowshoes. More than just canoe trips, day hiking trips and a 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.
Required
Prepare the memo.