123456 Ontario Ltd. (ONTLTD) is a company whose primary activities are hosting a real-time, online fantasy hockey website and writing and publishing an annual magazine that discusses fantasy hockey strategies, predictions, and articles. ONTLTD has an August 31 year end. This year end was selected as the main hockey season begins in September. ONTLTD is a privately held company, owned by Jim and Peter, two friends who started the business to build on their affinity of fantasy hockey and capture a portion of the $800-million industry. Jim holds a computer science degree, and Peter holds an Honours Bachelor of Commerce degree and is a professional accountant. By providing faster service, along with more statistics, projections, and game play options, Jim and Peter felt that they could offer a unique service that differentiates their website from all of the competitors. In addition, ONTLTD is seeking to expand its services by offering fantasy coverage of American and Canadian college hockey, to go along with professional hockey. Given the significant growth in the industry, ONTLTD has recently received many offers to sell the business. Jim and Peter are unsure about selling their business as they enjoy their jobs, and believe that there will be much room for future business growth. However, the owners also know that fantasy hockey could be just another fad that is currently at its peak. In addition, the rate of change in the on-line gaming industry could lead to a possible alternative platform. Therefore, the owners feel it is prudent to at least consider the offers to sell. A general review of the purchase offers suggests that fantasy hockey companies generally sell for an average of 2 times revenues and 4 times net earnings. The owners review the internal financial statements for 2014, which report revenues of $955,000 and earnings of $516,250. Jim quickly determines that ONTLTD could be sold for $2,047,500 or just over $1 million for each owner. This is a considerable sum of money given that they have invested only five years with ONTLTD. However, Peter states that the internal financial statements are only draft at this stage because he has yet to consider the impact of the following events: 1. ONTLTD writes an annual fantasy hockey magazine. The magazine goes on sale in July, and is sold through the company's website and through various retailers. This year, ONTLTD secured a large con- tract with Books, a large book and magazine retailer in Canada. The contract allow Books to return any unsold magazines at the end of October (history suggest that annual magazines no longer sell after October as they become outdated and lose their relevance). A total of 40,000 magazines were shipped to Books in July. Books will be required to pay ONTLTD $3 per magazine if all 40,000 are sold, $3.50 per magazine if less than 40,000 but more than 20,000 magazines are sold, and $4 per magazine if less than 20,000 are sold. The magazines have a retail price of $6.99. The cost to develop the content and publish the magazine was incurred in the months of April to July. Accordingly, Peter recorded $120,000 in revenue when the magazines were shipped. Historically, ONTLTD has sold 70% of its stock prior to August. Jim and Peter believe that the amount of foot traffic at Books should increase the percentage of magazines sold. 2. ONTLTD revised the layout, graphics, and content of the annual magazine this year. The redesign resulted in an addition $95,000 in expenses in the current year, relative to the past three years, whereby the magazine maintained the same format as in prior years. Magazines normally go through a redesign phase every three to four years in order to provide readers with a fresh and current magazine. Peter has capitalized the $40,000 as an intangible asset (magazine design). The finite life asset will be amortized over its useful life.  3. ONTLTD earns the majority of its revenue from fees charged to use its website to host a fantasy hockey league. ONTLTD charges users $20 per season (seasons run from September to January). This year ONTLTD offered two new promotions:a) Early Bird Registration: Users who register and pay for a season prior to August 31 would be eligible for a reduced $17 fee. The fee is non-refundable, and must be used for the upcoming fantasy hockey season. A total of 4,500 users took advantage of the early bird price for the upcoming season. Revenue was recorded as users registered.b) Three-Year Membership Fee Reduction: Users can register and pay for the next three seasons for a total price of $33. The fee is non-refundable, and must be used for the upcoming three fantasy hockey seasons. A total of 8,000 users registered for the three-year membership fee. Revenue was recorded as users registered for the three-year seasons' package. 4. In addition to redesigning the annual magazine, ONTLTD also redesigned its website. The redesign resulted in some general changes, along with significant upgrades to the functionality of the website. The total cost of the website redesign was $90,000, of which $57,000 was a result of programming costs for the upgrades and advertising. Peter has capitalized all $90,000 in costs to the website intangible asset. Given the nature of the company's operations, the vast majority of all costs are fixed overhead costs related to staff support, server maintenance, hardware maintenance, and website design. Any variable costs are immaterial.