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 involved 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

4. In early December 2020 one of J&C's customers declared bankruptcy. The customer owed J&C $22,000. The customer is trying to reorganize but it's clear that I&C will collect little if any of the money it's owed. The customer is trying & to reorganize the company and it is currently negotiating with its major creditors. J&C has always recorded bad debts on a direct write-off basis. For the year ended December 31, 2020, no adjustment to the financial statements was made for this receivable.

Please provide:

- Implications:

- Analysis

- Alternative 1:

- Alternative 2:

- Recommendations: