J&C Co. (J&C) is a manufacturer of women's outerwear. Most of J&C's merchandise in manufactured in Canada. Although production costs are higher in Canada, the company finds that the high quality of the clothes allows it to remain profitable. I&C was founded in 2006 by John Hogan and Christine Murker. Each shareholder owns 50 percent of the shares of the company. In late 2019, John and Christine had a major disagreement on the direction of the company, and they have not spoken since. John is no longer inrolved in the Day-to-day operations of the company and any input he provides is done through his lawyer. In April 2020, John and Christine agreed (through their lawyers) that Christine would buy John's shares at fair market value, where fair market value would equal three times net income for the year ended December 31, 2020, with the financial statements prepared in accordance with Accounting Standards for Private Enterprises (ASPE) consistently applied. You are John's long-time accountant and financial advisor. On February 15, 2021, John storms into your office in a rage. He has just received the 2020 financial statements from Christine, and they showed that net income was $142,000, well below the average reported in recent years. John blasts that this is utter rip-off because he's not going to get nearly enough for his shares, and he isn't going to stand 1. You tell John to calm down and he gives you the financial statements to examine. John points out a number of issues he is concerned about, and you tell him you will analyze them and prepare the report explaining any problems with the accounting treatments used and the impact on the agreement. The issues are described in Exhibit A, which follows. Required: Prepare the report for John Hogan.

EXHIBIT A: Issues Identified on Your Review of J&C's 2020 Financial Statements

1. In November 2020, J&C received an order from an outerwear distributor in Chile. The goods were produced and shipped on December 15. This is the first time J&C has shipped to this distributor and the first time it has shipped outside of North America J&C's credit department received a report from a credit rating agency in Chile that indicated the customer had a credit rating of "good." The goods shipped are standard models that have been modified to meet the tastes of the Chilean market. These designs have always been popular in the North American market. The customer isn't allowed to return any of the goods but J&C has agreed to provide a rebate of 30 percent of the price the customer paid for any goods that it is unable to sell. J&C has not recognized the revenue as of December 31, 2020 because it's waiting until the goods are sold by the Chilean distributor.

Please provide:

- Implications:

- Analysis

- Alternative 1:

- Alternative 2:

- Recommendations: