[SOLVED] T&E Investor Corporation (TEIC) is a

T&E Investor Corporation (TEIC) is a holding company with wholly owned interests in the travel and entertainment industry. It is listed on the Toronto Stock Exchange and is subject to the reporting requirements of that exchange and of the Ontario Securities Commission. The company has the following divisions:
1. Adventures Ltd. (AL) is a travel services company. It sells vacation packages to vacation destinations, both at retail and at wholesale (i.e., to other travel agencies). AL is incorporated in British Columbia and operates 20 retail travel offices across the country.
2. Destination Inc. (DI) is a charter airline incorporated in Alberta that operates between Western Canada and various Caribbean and Central American vacation “sun destinations,” a number of European destinations, and Hawaii. DI’s main customer is AL. AL buys bulk seat blocks on DI’s flights and resells them at retail to individual customers and groups, and at wholesale to other retail travel agencies.
3. Brookside Investments Corp. is a real estate company that owns and operates several commercial properties in Canada. It also owns a number of hotels, including some Caribbean and European hotels that AL uses for its tour groups.
The senior executives of each of the operating divisions report directly to the senior executives of TEIC.
In mid-20X1, the North American and global economies entered a severe recessionary period due to a worldwide pandemic. The recession caused a significant decline in the travel business from 20X1 and throughout 20X2. AL was forced to cancel over 70% of its planned 20X1 tours due to lack of client bookings. The decline in travel caused many airlines to significantly reduce flight frequency. DI was no exception.
The multiple effects of the pandemic caused a significant decline in travel around the world and, as a result, a sharp decline in revenue from all of TEIC’s business segments. Brookside had less direct exposure to the travel slump, but it also saw a sharp decline in its revenue for all commercial properties due to decreased in-person shopping and bankrupt tenants.
The recession put TEIC’s shares under extreme pressure, and as a result, the TEIC shareholders demanded that the company review its expenses in order to keep the company afloat until travel and consumer spending resumed. Therefore, late in the second quarter of 20X2, TEIC’s board of directors developed a restructuring plan, the major components of which are as follows:
Closing of Store Locations
Midway through the recession, TEIC’s board decided to revamp AL’s operations. AL announced its intention to close all of its retail travel offices. The company would now offer virtual travel counselling using a small dedicated team of experts that work from home. In September, TEIC publicly announced its intention to close its 20 offices by 31 December 20X2, offering the work-from-home option for some employees and severance packages to all full-time staff. Part-time employees would receive two weeks’ pay after the offices closed. AL estimates the cost of severance packages at $2,240,000, although that amount had not been publicly announced.
AL also contracted an Internet consultant to help the company update its website and to allow for the virtual travel counselling. The costs associated with the new online presence are estimated to cost AL $450,000. The majority of the work was completed in early December 20X2; however, the consultant has agreed to accept payment for the services in January 20X3.
Sale of European Hotel Group
To generate some much-needed cash and to relieve TEIC of the burden of properties with negative cash flow, TEIC’s board of directors decided to put their European hotel group on the market. The hotels were owned by Brookside Investments Corp.
On 25 October 20X2, TEIC’s board of directors accepted a purchase proposal from Grand Properties Ltd. (GPL). GPL agreed to acquire all of the European hotels for cash consideration of $175 million. It would acquire all the division’s assets and assume all debt related to the European properties. The purchase price was $175 million, based on the fair value of the hotel assets less the present value of the related mortgage debt. The transaction was scheduled to be completed in February 20X3. In the meantime, Brookside would continue to operate the hotels and receive all monies until the sale was finalized.
The book value of the division’s real estate asset portfolio was $525 million on 25 October 20X2. The appraised fair value on 25 October was $1,030 million. At 31 December 20X2, the fair value of the portfolio was $1,140 million. The fair value of the related debt was $770 million on 25 October and $760 million on 31 December.
In 20X1, the European hotel subsidiary had total revenues of $80 million and net loss of $5 million. Revenue for 20X2 was expected to be $100 million, with a net operating loss of approximately $25 million.
Sale of Retail Mall
In August 20X2, TEIC realized that the company needed to improve its consolidated working capital position to satisfy a debt covenant. Therefore, it asked Brookside to find a buyer for one of its major retail malls. After reviewing its portfolio, Brookside managers decided to put a fairly new retail mall in suburban Toronto on the market. The mall had been constructed just three years ago and was carried on Brookside’s books at $200 million, of which $15 million would have been charged to expense by the end of 20X2.
Brookside hired an independent consulting firm to facilitate the sale, promising a 5% commission. Although there was no publicly announced asking price, the firm let it be known that Brookside would entertain only offers of $200 million or higher.
Several real property developers in the United States and Canada expressed interest. On 5 January 20X3, Brookside accepted an offer from a large pension fund for $212 million, conditional on the buyer’s due diligence investigation. The buyer gave Brookside a 10% deposit. The tentative closing date is 15 March 20X3.
It is now 10 January 20X3 and you currently work for TEIC in the accounting department reporting directly to the CFO. She has asked you prepare a report that analyzes the reporting implication for each of the above transactions. She noted that the board is hoping these transactions will have a positive impact on the company’s bottom line and asked you to summarize their impact. Nothing has been recorded for any of these transactions.
Required:
Prepare the report to the CFO.

Question: T&E Investor Corporation (TEIC) is a