---------I checking my understanding:

AGUAMAINT, INC. REQUIREMENT 1

It was Tuesday, January 6, 20X2 and Tom Fasbee had just gotten back from a session of pickleball and lunch. Tom always enjoyed the week after New Year's. The weather was crisp, and his professional practice was underway in earnest. Tom was a partner in the CPA firm of Lake & Lock, a regional accounting firm headquartered in St. Louis. Tom always felt he was born to be an accountant and loved his job. His messages included a call from Nick Riley at Aguamaint, Inc. He and Nick were members of a local athletic club and Nick had just beaten him in two consecutive games. Tom was fairly certain that Nick had called to gloat a little. They had known each other about five years and enjoyed a healthy rivalry in both tennis and pickleball. Lake & Lock had a professional relationship with Nick and his family. It began in late 20X0 when Nick's father passed away and the firm helped settle the estate. Nick and his three sisters each received about $100,000 as their settlement. Nick was a mechanical engineer and was head of maintenance at a fair-sized chemical plant. Ray Ballard, a close friend of Nicks, managed the City Water District. Both men were recognized experts in hydraulics. For several years, Nick and Ray had discussed the market potential of providing hydraulic maintenance services on a contract basis to water districts, chemical plants, refineries, and pipeline pumping stations throughout the Midwest. Both men were convinced that it was more efficient for these enterprises to outsource maintenance services. With Nick's inherited wealth, the possibility of such a business arrangement became more real. The results of a market study proved to be quite promising, and preliminary negotiations resulted in seven maintenance contracts. So in early 20X1, Nick and Ray decided to incorporate a new company in the State of Missouri and named it Aguamaint, Inc.

Ray thought it best to keep expenses as low as possible in the first couple of years, so called his cousin Melba Sanders to ask if Aguamaint could rent the empty warehouse she owned. She had been thinking about tearing the building down, but was happy to provide the space to Ray, at least for a while. Nick and Ray set up both their corporate office and maintenance shop in the warehouse. Melba was not interested in owning stock in the company, so they agreed on a cash price for the monthly rent and signed an agreement. The seven new maintenance contracts called for monthly fee payments that were billed and collected after the work was completed at month end. The fees for all seven contracts were fixed and covered all maintenance work, even though the amount of work performed might vary from period to period. Most customers paid off their accounts within 20 to 30 days. Aguamaint required its clients to purchase the material used in its maintenance services directly from third-party suppliers, who provided product warranties in some cases. Since one of the new contracts was with Nick's former employer, he was able to hire most of his former staff, and after extensive training, Aguamaint initiated operations with a competitive work force. Initial financing for the company came from friends and family, including two of Nick's sisters and Ray's father. Lake & Lock helped Aguamaint set up an accounting system and hired its bookkeeper, Jerry Loos. Tom returned Nick's call, and while Nick did gloat about his pickleball triumphs, he also had something else in mind. More contracts were about to materialize, but there was a need for additional financing to support equipment purchases. Aguamaint currently was operating with two rented crew trucks. The trucks were rigged with tooling, but not to the specifications necessary for efficient long-term operations, and they were not exactly new. Trucks with specially designed tooling would be required to handle the new contracts. So, Aguamaint decided to buy two new trucks with customized rigging. Other modifications would be added later in the company's shop, depending on future contract needs.

To finance the truck purchases, Nick and Ray decided to approach Midwest Regional Bank about securing a loan commitment. They quickly learned that the bank required the company to provide certain financial information before making a loan decision. Jerry Loos had prepared financial statements as of December 31, 20X1, the end of the company's fiscal year. However, the bank wanted a CPA firm to provide assurances on the integrity of the financial statements in the form of a review. Tom said that Lake & Lock would be glad to do the work and could begin the next afternoon. Tom also got permission to contact Aguamaint's loan officer, Regina Sontag, to be sure he knew if the bank needed information in addition to the review, and if a review would actually meet their needs. When Tom called Regina Sontag at Midwest Regional Bank, Regina assured him that the bank did not want anything as comprehensive as an audit, but something more than a mere compilation. She wanted a review report prepared and signed by Lake & Lock. Regina also stated that the bank wanted earnings per share (EPS) figures and, if appropriate, line of business or segment information for analytical purposes. Tom was able to wrest your services away from another engagement to perform Aguamaint's review. You consulted the latest AICPA Statement on Standards for Accounting and Review Services (SSARS) and found the following objective of a review of financial statements:

The objective of the accountant when performing a review of financial statements is to obtain limited assurance as a basis for reporting whether the accountant is aware of any material modifications that should be made to the financial statements for them to be in accordance with the applicable financial reporting framework, primarily through the performance of inquiry and analytical procedures.

You and Tom were scheduled to meet with Nick Riley, Jerry Loos, and Regina Sontag for lunch the next day. You always had enjoyed such luncheon meetings; they were with interesting people and always at quality places. Sure enough, the restaurant was top notch and the food was great. Nick emphasized how important the loan was for obtaining the right equipment needed to be able to negotiate new maintenance contracts. With only seven contracts, Aguamaint relied heavily on each customer, and losing even one could be devastating. He had a new contract pending, and he was being pressured to close the deal within a couple of weeks. Tom responded that the review could be completed by Tuesday, January 13, 20X2. Regina Sontag assured Nick that with reviewed financial statements in hand, her loan committee would have a response by the following Friday, January 16. Jerry Loos indicated that the financial statements were ready and that he was prepared to provide detailed information on any of the statements' elements. All agreed that you would accompany Jerry to Aguamaint after lunch and make an initial examination of the financial statements. Based on this preliminary investigation, you would prepare a to-do list for Jerry setting forth your additional information needs. Jerry would have at least some of this ready for you the next day. During your initial visit, Jerry answered a number of your questions. He assured you that the company's bank account had been reconciled with outstanding checks accounting for the only reconciling items. He also assured you that he was pretty sure the accruals through December 31, 20X1 had been booked.

Jerry also shared that he was relieved that the payday for crew and shop wages came yesterday after just receiving a customer payment on Monday. He informed you that if he had known he would be in such a cash crunch he may not have paid the insurance premium up front to get the discount he got back in February. He also told you that shop equipment was being depreciated over seven years with no salvage value, depreciation was computed to the nearest full year, and that licensing costs were being amortized over the useful life of the license agreement. Jerry noted that he accrued the income taxes at the statutory rate of 21 percent. He also asked that you prepare the correct income tax entry if adjusting entries were required as a result of your review.

REQUIRED: The journal entries and financial statements prepared by Jerry Loos follow. Provide the assurance needed that the financial statements are in accordance with U.S. GAAP. Be as specific and respectful as possible, and where possible, provide a FASB Codification reference that supports your request. Also, provide a written reason that explains the issue.

******************I would like to know ,this statment is right:

Issue: Aguamaint wound up discounting $69,600 of their receivables this year since they could not gather on them. They need to write off an extra $41,000 from the open records on their books as of December 31, 20X1. Aguamaint has concluded that they will just book an allowance for half of the $60,000 that is past due.

Rule: The rule for the stipend for uncollectible records is in ASC 310-10-35-10 Loss from Uncollectible Receivables. The standard necessitates that recompense is made when both of two conditions are met. The primary condition is that there should be data before giving the fiscal summaries that demonstrate that there is a chance of no gathering on a receivable. The subsequent condition is that the misfortune on the receivable can sensibly be assessed. On the off chance that these conditions can be meet than a section should be offered for the leniency. An exposure note additionally should be made in the budget reports about the stipend whether a section is made or not.

AGUAMAINT, INC. STATEMENT OF INCOME FOR THE YEAR ENDING DECEMBER 31, 20X1 AGUAMA INT, INC. BALANCE SHEET DECEMBER 31, 20X1 Service revenue $ 757.800 ASSETS $ Expenses Cost of goods sold Selling and administrative Depreciation and amortization Tax expense Total expenses 476 295 248.969 17.060 3.250 745,574 CURRENT ASSETS Cash Accounts receivable Total Current Assets 2,536 69,600 72,136 Net income $ 12 226 LONG-TERM ASSETS Equipment Accumulated depreciation equipment License Start-up costs Total Long-Term Assets 42.700 (6,100) 44.800 31,040 112.440 TOTAL ASSETS $ 184,576 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES Accounts payable Taxes payable Total Current Liabilities S 19.100 3.250 22.350 OWNERS EQUITY Common stock Retained earnings Total Stockholders' Equity 150,000 12 226 162 226 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 184,576 11 AGUAMAINT, INC. JOURNAL ENTRIES DECEMBER 31, 20X1 562 601 101 7,250 1,450 SERVICE COSTS-INDIRECT-SHOP UTILITIES SELLING & ADMIN-UTILITIES CASH To record accrual and payment of utility expense. 8,700 JE# CREDIT DATE 1/02/X1 1 12 31,205 553 101 ACCT# ACCOUNT NAME DE BIT 101 CASH 30,000 197 LICENSE 40,000 461 CAPITAL STOCK-COMMON To record issuance of common stock for cash and license agreement. SERVICE COSTS-DIRECT-FUEL CASH To record purchase and payment of truck fuel. 31,205 70,000 13 14,200 564 302 2 1/02/X1 8,000 197 101 14,200 SERVICE COSTS-NDIRECT-SUPPLIES ACCTS PAY-SUPPLIERS-OTHER COSTS To record purchase of shop supplies on account. LICENSE CASH To record cash payment for license agreement 8,000 14 552 101 71,800 3 102/X1 71,800 SERVICE COSTS-DIRECT-LEASE EXPENSE-TRUCKS CASH To record maintenance trucks rental payment 1/02/X1 563 602 101 SERVICE COSTS-INDIRECT-LEASE EXPENSE-SHOP BLDG 22,500 SELLING & ADMIN-LEASE EXPENSE-OFFICE BLDG 4.500 CASH To record payment and allocation ofrental expense or the shop and office. 27,000 15 217 101 38,800 START-UP COSTS CASH To record payment ofstart-up costs oftraining new employees. 38,800 4 1/10/X1 42,700 171 303 EQUIPMENT ACCTS PAY-EQUIPMENT ACQUISITION To record purchase of shop equipment. 42,700 16 303 302 101 ACCTS PAY-EQUIPMENT ACQUISITION 42.700 ACCTS PAY-SUPPLIERS-OTHER COSTS 3,100 CASH To record payments on account for equipment and or shop supplies inventory. 45,800 5 80,000 101 461 CASH CAPITAL STOCK-COMMON To record issue of common shares at par. 80,000 17 12/31/X1 6,100 704 172 EQUIPMENT DE PRECIATION EQUIPMENT-ACCUMULATED DEPRECIATION To accrue depreciation expense on sh op equipment. 6,100 6 757,800 105 505 ACCOUNTS RECEIVABLE SERVICE REVENUE FROM CONTRACTS WITH CUSTOMERS To record revenue fom maintenance contracts. 757,800 18 12/31/X1 3,200 710 197 AMORTIZATION OF LICENSING COSTS LICENSE To record amortization of licensing costs. 3,200 7 101 105 688,200 CASH ACCOUNTS RECEIVABLE To record payments received on account. 688,200 19 123 1X1 7,760 711 217 AMORTIZATION OF START-UP COSTS START-UP COSTS To record amortization of start-up costs. 7,760 8 231,340 560 101 SERVICE COSTS-DIRECT-CREW WAGES CASH To record accrual and payment of crew wages. 231,340 20 12131X1 3,250 821 314 INCOME TAX EXPENSE INCOME TAX PAYABLE To record income tax expense for 20X1. 3.250 9 98,000 561 101 SERVICE COSTS-INDIRECT-SHOP WAGES CASH To record accrual and payment of shop wages. 98,000 Totals 2,476,874 2,476,874 10 611 612 609 --- 607 610 615 631 302 101 SELLING & ADMIN-OFFICERS SALARIES SELLING & ADMIN-OTHER SALARIES SELLING & ADMIN-PROFESSIONAL FEES SELLING & ADMIN-SUPPLIES SELLING & ADMIN-INSURANCE SELLING & ADMIN-PAYROLL AND OTHER TAXES SELLING & ADMINISTRATIVE-OTHER ACCTS PAY-SUPPLIERS-OTHER COSTS CASH To record accrual and payment of S&A expenses. 130,000 52,040 4,850 5,309 4,890 39,130 6,800 8,000 235,019 AGUAMAINT, INC. STATEMENT OF INCOME FOR THE YEAR ENDING DECEMBER 31, 20X1 AGUAMA INT, INC. BALANCE SHEET DECEMBER 31, 20X1 Service revenue $ 757.800 ASSETS $ Expenses Cost of goods sold Selling and administrative Depreciation and amortization Tax expense Total expenses 476 295 248.969 17.060 3.250 745,574 CURRENT ASSETS Cash Accounts receivable Total Current Assets 2,536 69,600 72,136 Net income $ 12 226 LONG-TERM ASSETS Equipment Accumulated depreciation equipment License Start-up costs Total Long-Term Assets 42.700 (6,100) 44.800 31,040 112.440 TOTAL ASSETS $ 184,576 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES Accounts payable Taxes payable Total Current Liabilities S 19.100 3.250 22.350 OWNERS EQUITY Common stock Retained earnings Total Stockholders' Equity 150,000 12 226 162 226 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 184,576 11 AGUAMAINT, INC. JOURNAL ENTRIES DECEMBER 31, 20X1 562 601 101 7,250 1,450 SERVICE COSTS-INDIRECT-SHOP UTILITIES SELLING & ADMIN-UTILITIES CASH To record accrual and payment of utility expense. 8,700 JE# CREDIT DATE 1/02/X1 1 12 31,205 553 101 ACCT# ACCOUNT NAME DE BIT 101 CASH 30,000 197 LICENSE 40,000 461 CAPITAL STOCK-COMMON To record issuance of common stock for cash and license agreement. SERVICE COSTS-DIRECT-FUEL CASH To record purchase and payment of truck fuel. 31,205 70,000 13 14,200 564 302 2 1/02/X1 8,000 197 101 14,200 SERVICE COSTS-NDIRECT-SUPPLIES ACCTS PAY-SUPPLIERS-OTHER COSTS To record purchase of shop supplies on account. LICENSE CASH To record cash payment for license agreement 8,000 14 552 101 71,800 3 102/X1 71,800 SERVICE COSTS-DIRECT-LEASE EXPENSE-TRUCKS CASH To record maintenance trucks rental payment 1/02/X1 563 602 101 SERVICE COSTS-INDIRECT-LEASE EXPENSE-SHOP BLDG 22,500 SELLING & ADMIN-LEASE EXPENSE-OFFICE BLDG 4.500 CASH To record payment and allocation ofrental expense or the shop and office. 27,000 15 217 101 38,800 START-UP COSTS CASH To record payment ofstart-up costs oftraining new employees. 38,800 4 1/10/X1 42,700 171 303 EQUIPMENT ACCTS PAY-EQUIPMENT ACQUISITION To record purchase of shop equipment. 42,700 16 303 302 101 ACCTS PAY-EQUIPMENT ACQUISITION 42.700 ACCTS PAY-SUPPLIERS-OTHER COSTS 3,100 CASH To record payments on account for equipment and or shop supplies inventory. 45,800 5 80,000 101 461 CASH CAPITAL STOCK-COMMON To record issue of common shares at par. 80,000 17 12/31/X1 6,100 704 172 EQUIPMENT DE PRECIATION EQUIPMENT-ACCUMULATED DEPRECIATION To accrue depreciation expense on sh op equipment. 6,100 6 757,800 105 505 ACCOUNTS RECEIVABLE SERVICE REVENUE FROM CONTRACTS WITH CUSTOMERS To record revenue fom maintenance contracts. 757,800 18 12/31/X1 3,200 710 197 AMORTIZATION OF LICENSING COSTS LICENSE To record amortization of licensing costs. 3,200 7 101 105 688,200 CASH ACCOUNTS RECEIVABLE To record payments received on account. 688,200 19 123 1X1 7,760 711 217 AMORTIZATION OF START-UP COSTS START-UP COSTS To record amortization of start-up costs. 7,760 8 231,340 560 101 SERVICE COSTS-DIRECT-CREW WAGES CASH To record accrual and payment of crew wages. 231,340 20 12131X1 3,250 821 314 INCOME TAX EXPENSE INCOME TAX PAYABLE To record income tax expense for 20X1. 3.250 9 98,000 561 101 SERVICE COSTS-INDIRECT-SHOP WAGES CASH To record accrual and payment of shop wages. 98,000 Totals 2,476,874 2,476,874 10 611 612 609 --- 607 610 615 631 302 101 SELLING & ADMIN-OFFICERS SALARIES SELLING & ADMIN-OTHER SALARIES SELLING & ADMIN-PROFESSIONAL FEES SELLING & ADMIN-SUPPLIES SELLING & ADMIN-INSURANCE SELLING & ADMIN-PAYROLL AND OTHER TAXES SELLING & ADMINISTRATIVE-OTHER ACCTS PAY-SUPPLIERS-OTHER COSTS CASH To record accrual and payment of S&A expenses. 130,000 52,040 4,850 5,309 4,890 39,130 6,800 8,000 235,019