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Vision Security Enterprises

Vision Security Enterprises $($VSE$)$ is a home and commercial security company. The company was established in $1968$ by Luigi Bruce, its sole shareholder, to provide security services in Halifax. Since its inception, VSE has grown to provide its services across all major cities in Atlantic Canada.

In order to continue growing the company, Luigi has decided to expand into Ontario and Quebec. In order to facilitate the expansion, VSE is planning to become a franchiser whereby local entrepreneurs can purchase an exclusive right to be the Vision Security provider in their community. This is a significant change in strategy as VSE currently owns and operates all of the locations in Atlantic Canada.

In order to help facilitate the strategic shift, Luigi hired Jason Armand early in the fiscal year as the new manager of the Ontario and Quebec region. Jason is familiar with the franchiseefranchisor relationship as he was formerly employed at a large pizza restaurant chain.

Luigi is very happy with the performance of Jason thus far as $15$ franchises have been opened throughout Ontario and Quebec during the year, along with five locations opened and operated by VSE. Luigi will have no problem signing Jason's bonus cheque, which is calculated as $10\%$ of the operating income generated from the Ontario and Quebec markets.

You are the controller of VSE and recently began preparing for the December $31,2020,$ year$-$end audit. The year$-$end aucit will require more work this year because of the company's expansion, specifically the new franchisor transactions. As you prepare for the audit, you review the preliminary income statement, as prepared by Jason, for the Ontario and Quebec segments $($ExhibitI$),$ along with information regarding various transactions that occurred during the year $($Exhibit II$).$ VSE prepares its financial statements in accordance with ASPE.

Exhibit I

Segmented Income Statement

$\backslash$table$[[,$Ontario,Quebee,Total$],[$Revenues$],[$Initial franchise fee$-$promotional rate,$ $225,000,$$$450,000,$$ $675,000],[$Initial franchise fee$-$regular rate,$1,350,000,1,350,000,2,700,000$

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