ontain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing During the first week of January 20X4, Tom Fasbee called you to his office and asked if you would be willing to review Aguamaint's financial statements one more time. The company had decided to offer a benefits package (medical insurance and pension) to try to keep its good employees. You remember there was some discussion of these matters during last year's engagement Additionally, the company was finding it necessary to replace pumps, valves, and other equipment when performing maintenance. Initially, Aguamaint simply arranged for the customer to purchase repair parts, and Aguamaint then would install them. However, in late August, Nick and Ray decided that the company should carry its own equipment inventory. They both felt confident that their market would eventually extend beyond their current maintenance customers so they went ahead with the purchase of computerized pressure-monitoring pumps and valves inventory. Since these instruments are not bulky, they can be stored in the current shop space. They felt this line of parts would best meet their customer needs in terms of price and quality. In addition, they are offering to make good on any problems encountered by their customers on these items. Although not a large client, you liked the people at Aguamaint and readily agreed to the assignment. Tom handed you the draft 20X3 financial statements that Jerry Loos had prepared and sent over Jery was expecting some questions from you tomorrow morning (Thursday), and indicated that he would have his responses ready for you the next day. You decided to consult with Linda Durkee about the tax consequences of the pension plan. Linda was fairly certain that the plan and its funding were approved by ERISA. Thus, its benefits were insured and any expense computed was fully deductible for tax purposes. She also told you that you should be aware that any cash contributions in excess of the pension expense for the current year are not deductible according to the Internal Revenue Code Sec. 404(a)(1)(A)(i). Additionally, Linda recalled that management planned to allocate prior service costs over the next 10 years beginning in 20X3. In addition, during your preliminary analytical review of Aguamaint's balance sheet, you noticed two new investments in marketable equity and debt securities. You asked Linda whether an unrealized gain was taxable. She assured you that such gains would not be taxable until the securities were sold. REQUIRED: The iournal entries and financial statements prepared bv Jerrv Loos are attached. Review REQUIRED: The journal entries and financial statements prepared by Jerry Loos are attached. Review these data and prepare a list of additional information needed from Jerry. Be as specific as possible and phrase your requests in the form of questions as they normally would be asked of a client. You should also be prepared to explain your reasons for asking specific questions. As you determine the data needed, be aware that once again, Jerry has asked you to prepare the statement of cash flows, statement of changes in stockholders' equity, financial statement notes, and earnings per share disclosures. He also reminded you that the bank wants comparative statements and requires the fair value of all financial instruments and information on major customers be disclosed. AGUAMAINT, INC. BALANCE SHEET DECEMBER 31, 20x3 ASSETS 20x3 CURRENT ASSETS Cash 17,319 Accounts reoeivable 203,000 Allowance for doubtful accounts (19,500) Inventory 185,623 Supplies on hand 13,955 Prepaid irsurance 207 Total Current Ass ets 400,663 PROPERTY, PLANT, AND EQUIPMENT Equipment Accumulated depr eciation-equipment 42700 (18,300) Vehides 232000 Accumulated depreciation- vehicles (77,333) Total Property, Plant and Equipment 179,008 RIGHT OF USE ASSETS Operating leas e-build ing Total Right of Use Ass ets 288,537 288.537 INTAN GIBLE ASSETS 38.400 License Total Intang ible Ass ets 38,400 OTHER ASSETS 314 880 Long-term investmens Deferred income tax 11.174 326.054 Total Other Ass ets 1,232.721 TOTAL ASSETS LIABILIMES AND STOCKHOLDERS' EQUITY IABILITIES CURRENT LIABUITES 13,367 AcCounts payable 20,164 Wages payable Interest payable-note 8,825 24,330 Income tax paysble 47,547 Shart term portion of long term debt Short term partion of operating leas e payable 39,000 45,800 Deferred contract revenue 199,033 Total Current Liabilities LONG TERM LIABIUITIES 112.908 Note payable 210,537 Operating lease payable Total Long-term Liabil iti es 323 443 522 476 Total Lisbilites STOCKHOLDERS EQUITY Common stodk 150,000 580.245 Retained earnings 710 245 Total Stockholders Equity 1232,721 TOTAL LIAB ILITIES AND STOCKHOLDERS EQUITY AGUAMAINT, INC. STATEMENT OF INCOME FOR THE YEAR ENDING DECEMBER 31, 20X3 20X3 $ 1,953,600 Service revenue 240,900 2,194,500 Sales revenue Total revenue 925,527 Cost of services sold 154,906 Cost of goods sold 1,080,433 Cost of goods sold Gross profit 1,114,067 Operating expenses Selling and administrative Depreciation and amortization Total operating expenses 635,979 47,967 683.945 Other income (expense) 6,400 Dvidend income (8,365) Interest revenue (expense) T otal other income (expense) (1,965) 428, 157 Operating income before income taxes (89,913) Income tax expense Net ihcome 338,244 AGUAMAINT, NC. GENERAL JOURNAL DECEMBER 31, 203 DEBIT CREDIT ACCT # ACCOUNT NAME E# DATE LEASE PAYABLE-BUILDING 39,000 1/13 410 39,000 CASH 101 To recard building aper ating lees epayment for 203 155.000 2 1/203 616 SELLING &ADMIN-PENSION SERVICE COST 155,000 101 CASH To recard payment to persion fund trustee PREPAID INSURANCE SELLING & ADMIN-INSURANCE 63 132 3 2/13 3,137 610 3,200 101 CASH To recard renewal of insurance policy 12.480 4 2/1/3 311 NTEREST PAYABLE-NOTES LONG-TERM DEBT-NOTES 47,547 401 60,027 101 CASH To recard annual peyment on note SERVICE COSTS-DIRECT-LEASE EXPENSE-TRUCKS 28,198 5 2/1/X3 552 28, 198 101 CASH lecs e payment on new tuck To recard 27 800 e 2123 554 SERVICE COSTS-DIRECT-R AND M 27,800 101 CASH To record repa irs and meintenance expens e. 7 101 CASH 394 800 105 ACCOUNTS RECENABLE 1,558800 1,953,600 505 SERVICE REVENUE FROM CONTRACTS WITH CUSTOMERS To record maintenances ervices ales for 200X3 101 CASH 1,49e,900 105 ACCOUNTS RECENABLE 1,49e,900 To record collection on account for s ervice sales SERVICE COSTS-DIRECT-CREW WAGES 520 515 305 WAGES PAYABLE e 280 560 SERVICE COSTS-DRECT-CREW WAGES 50.515 305 WAGES PAYABLE 6,280 305 WAGES PAYABLE 15140 101 CASH 511,655 To recard arew wage experse 581 SERVICE COSTS-NDRECT-SHOP WAGES 220 500 305 WAGES PAYABLE 3,100 WAGES PAYABLE 305 5.024 101 CASH 218 578 To recard shop wage eperse SELLING & ADMINISTRATME-OTHER 831 8,580 156,000 SELLING & ADMIN-OFFICERS SALARES 611 SELLING & ADMIN-OTHERSALARES 612 34,000 609 SELLING & ADMIN-PROFESSIONAL FEES SELLING& ADMIN-PAYROLL AND OTHER TAXES SELLING & ADMIN-SUPPLIES 6,984 615 88,043 607 13,800 101 CASH 307 207 To record various S&A expenses SERVICE COSTS-INDRECT-SHOP UTILITIES SELLING& ADMIN-UT LITIES 562 21,875 4.335 601 CASH 28,010 101 To record utilities expense. 83,115 553 SERVICE COSTS-DIRECT-FUEL 83,115 101 CASH To record fuel expense SUPPLIES ON HAND 5,778 129 45,724 SERVICE COSTS-INDIRECT-SUPPLES 564 ACCTS PAY-SUPPLIE RS-OTHER COSTS To record supplies expense. 51502 302 50,389 ACCTS PAY-SUPPLIE RS-OTHER COSTS 302 70.187 INCOME TAX PAYABLE 314 120.576 101 CASH To record payments on aocount and income tax payment 65.583 314 INCOME TAX PAYABLE 85.583 101 CASH To record estmated tax paymentbased on 90% of 20X2 current tax payable 38.300 SELLING & ADM IN-MEDICAL BENEFTS e03 36.300 101 CASH To record payment of health insurance 100 000 205 DEBT SECURITES-AFS MARKETABLE 830x3 100.000 101 CASH To purchase Cascade Energy bond in vestment 340 529 MERCHANDISE NVENTORY 21 340 529 CASH 101 To record pu roh a se of cmp and va e nventony ACCOUNTS RECENABLE SALES REVENUE To record sale of in ven tory 105 240 900 501 240 900 COST OF GOODS SOLD-NVENTORY MERCHANDISE NVENTORY 521 154,176 121 154.176 To record cost of in ven torysold. 101 CASH 240,900 105 ACCOUNTS RECENABLE 240900 To record receipt of cash on account br inventory EQUITY SECURITIES-LONG TERM MARKETABLE 201 214,880 101 CASH 214880 To record purch a se of AEP preferred strck shares 101 CASH 8.400 DIVIDEND INCOME-MKT EQ SEC-LT 804 0.400 To record AEP dividend inoome 730 COST OF GOODS SOLD-MERCH INMENTORYWARRANTY EXPENSE MERCHANDSE NVENTORY To record repairofmerdandise inventorysold to austomer 524 25 730 121 1,500 CASH 26 123183 101 1500 INTEREST REVENLE-AFS DEBT SEC 750 To record receipt of semi-annalinterest on AFS band inestment 130,000 SELL ING&ADMIN-PENSION SERMCE COST 616 27 123183 130,000 CASH 101 Torecord payment to pension fund trustee 9,805 INTEREST EXPENSE-NOTE PAYABLE INTERE ST PAYABLE-NOTES To acarue interest expense on note at year end. 28 12/313 751 9865 311 38,667 TRUCK DEPRECIATION VEHICLES-ACCUMULATED DEPRECIATION To record 20X3 deprediation an vehicles 29 12313 701 38,667 182 6,100 |EQUIPMENT DEPRECIATION EQUIPMENT-ACCUMULATED DEPRECIATION To record 20X3 depreaiation an shop equipment 30 12/313 704 6,100 172 AMORT IZATION OF LICENSING COSTS 3,200 31 12/31K3 710 3200 LICENSE 197 To amortze license agreement. 89,913 INCO ME TAX EXPENSE 32 12/31X3 821 89913 INCOME TAK PAYABLE 314 To record in come taxexpense br 20X3 6.760,172 Totals 6,780,172 ontain viruses. Unless you need to edit, it's safer to stay in Protected View. Enable Editing During the first week of January 20X4, Tom Fasbee called you to his office and asked if you would be willing to review Aguamaint's financial statements one more time. The company had decided to offer a benefits package (medical insurance and pension) to try to keep its good employees. You remember there was some discussion of these matters during last year's engagement Additionally, the company was finding it necessary to replace pumps, valves, and other equipment when performing maintenance. Initially, Aguamaint simply arranged for the customer to purchase repair parts, and Aguamaint then would install them. However, in late August, Nick and Ray decided that the company should carry its own equipment inventory. They both felt confident that their market would eventually extend beyond their current maintenance customers so they went ahead with the purchase of computerized pressure-monitoring pumps and valves inventory. Since these instruments are not bulky, they can be stored in the current shop space. They felt this line of parts would best meet their customer needs in terms of price and quality. In addition, they are offering to make good on any problems encountered by their customers on these items. Although not a large client, you liked the people at Aguamaint and readily agreed to the assignment. Tom handed you the draft 20X3 financial statements that Jerry Loos had prepared and sent over Jery was expecting some questions from you tomorrow morning (Thursday), and indicated that he would have his responses ready for you the next day. You decided to consult with Linda Durkee about the tax consequences of the pension plan. Linda was fairly certain that the plan and its funding were approved by ERISA. Thus, its benefits were insured and any expense computed was fully deductible for tax purposes. She also told you that you should be aware that any cash contributions in excess of the pension expense for the current year are not deductible according to the Internal Revenue Code Sec. 404(a)(1)(A)(i). Additionally, Linda recalled that management planned to allocate prior service costs over the next 10 years beginning in 20X3. In addition, during your preliminary analytical review of Aguamaint's balance sheet, you noticed two new investments in marketable equity and debt securities. You asked Linda whether an unrealized gain was taxable. She assured you that such gains would not be taxable until the securities were sold. REQUIRED: The iournal entries and financial statements prepared bv Jerrv Loos are attached. Review REQUIRED: The journal entries and financial statements prepared by Jerry Loos are attached. Review these data and prepare a list of additional information needed from Jerry. Be as specific as possible and phrase your requests in the form of questions as they normally would be asked of a client. You should also be prepared to explain your reasons for asking specific questions. As you determine the data needed, be aware that once again, Jerry has asked you to prepare the statement of cash flows, statement of changes in stockholders' equity, financial statement notes, and earnings per share disclosures. He also reminded you that the bank wants comparative statements and requires the fair value of all financial instruments and information on major customers be disclosed. AGUAMAINT, INC. BALANCE SHEET DECEMBER 31, 20x3 ASSETS 20x3 CURRENT ASSETS Cash 17,319 Accounts reoeivable 203,000 Allowance for doubtful accounts (19,500) Inventory 185,623 Supplies on hand 13,955 Prepaid irsurance 207 Total Current Ass ets 400,663 PROPERTY, PLANT, AND EQUIPMENT Equipment Accumulated depr eciation-equipment 42700 (18,300) Vehides 232000 Accumulated depreciation- vehicles (77,333) Total Property, Plant and Equipment 179,008 RIGHT OF USE ASSETS Operating leas e-build ing Total Right of Use Ass ets 288,537 288.537 INTAN GIBLE ASSETS 38.400 License Total Intang ible Ass ets 38,400 OTHER ASSETS 314 880 Long-term investmens Deferred income tax 11.174 326.054 Total Other Ass ets 1,232.721 TOTAL ASSETS LIABILIMES AND STOCKHOLDERS' EQUITY IABILITIES CURRENT LIABUITES 13,367 AcCounts payable 20,164 Wages payable Interest payable-note 8,825 24,330 Income tax paysble 47,547 Shart term portion of long term debt Short term partion of operating leas e payable 39,000 45,800 Deferred contract revenue 199,033 Total Current Liabilities LONG TERM LIABIUITIES 112.908 Note payable 210,537 Operating lease payable Total Long-term Liabil iti es 323 443 522 476 Total Lisbilites STOCKHOLDERS EQUITY Common stodk 150,000 580.245 Retained earnings 710 245 Total Stockholders Equity 1232,721 TOTAL LIAB ILITIES AND STOCKHOLDERS EQUITY AGUAMAINT, INC. STATEMENT OF INCOME FOR THE YEAR ENDING DECEMBER 31, 20X3 20X3 $ 1,953,600 Service revenue 240,900 2,194,500 Sales revenue Total revenue 925,527 Cost of services sold 154,906 Cost of goods sold 1,080,433 Cost of goods sold Gross profit 1,114,067 Operating expenses Selling and administrative Depreciation and amortization Total operating expenses 635,979 47,967 683.945 Other income (expense) 6,400 Dvidend income (8,365) Interest revenue (expense) T otal other income (expense) (1,965) 428, 157 Operating income before income taxes (89,913) Income tax expense Net ihcome 338,244 AGUAMAINT, NC. GENERAL JOURNAL DECEMBER 31, 203 DEBIT CREDIT ACCT # ACCOUNT NAME E# DATE LEASE PAYABLE-BUILDING 39,000 1/13 410 39,000 CASH 101 To recard building aper ating lees epayment for 203 155.000 2 1/203 616 SELLING &ADMIN-PENSION SERVICE COST 155,000 101 CASH To recard payment to persion fund trustee PREPAID INSURANCE SELLING & ADMIN-INSURANCE 63 132 3 2/13 3,137 610 3,200 101 CASH To recard renewal of insurance policy 12.480 4 2/1/3 311 NTEREST PAYABLE-NOTES LONG-TERM DEBT-NOTES 47,547 401 60,027 101 CASH To recard annual peyment on note SERVICE COSTS-DIRECT-LEASE EXPENSE-TRUCKS 28,198 5 2/1/X3 552 28, 198 101 CASH lecs e payment on new tuck To recard 27 800 e 2123 554 SERVICE COSTS-DIRECT-R AND M 27,800 101 CASH To record repa irs and meintenance expens e. 7 101 CASH 394 800 105 ACCOUNTS RECENABLE 1,558800 1,953,600 505 SERVICE REVENUE FROM CONTRACTS WITH CUSTOMERS To record maintenances ervices ales for 200X3 101 CASH 1,49e,900 105 ACCOUNTS RECENABLE 1,49e,900 To record collection on account for s ervice sales SERVICE COSTS-DIRECT-CREW WAGES 520 515 305 WAGES PAYABLE e 280 560 SERVICE COSTS-DRECT-CREW WAGES 50.515 305 WAGES PAYABLE 6,280 305 WAGES PAYABLE 15140 101 CASH 511,655 To recard arew wage experse 581 SERVICE COSTS-NDRECT-SHOP WAGES 220 500 305 WAGES PAYABLE 3,100 WAGES PAYABLE 305 5.024 101 CASH 218 578 To recard shop wage eperse SELLING & ADMINISTRATME-OTHER 831 8,580 156,000 SELLING & ADMIN-OFFICERS SALARES 611 SELLING & ADMIN-OTHERSALARES 612 34,000 609 SELLING & ADMIN-PROFESSIONAL FEES SELLING& ADMIN-PAYROLL AND OTHER TAXES SELLING & ADMIN-SUPPLIES 6,984 615 88,043 607 13,800 101 CASH 307 207 To record various S&A expenses SERVICE COSTS-INDRECT-SHOP UTILITIES SELLING& ADMIN-UT LITIES 562 21,875 4.335 601 CASH 28,010 101 To record utilities expense. 83,115 553 SERVICE COSTS-DIRECT-FUEL 83,115 101 CASH To record fuel expense SUPPLIES ON HAND 5,778 129 45,724 SERVICE COSTS-INDIRECT-SUPPLES 564 ACCTS PAY-SUPPLIE RS-OTHER COSTS To record supplies expense. 51502 302 50,389 ACCTS PAY-SUPPLIE RS-OTHER COSTS 302 70.187 INCOME TAX PAYABLE 314 120.576 101 CASH To record payments on aocount and income tax payment 65.583 314 INCOME TAX PAYABLE 85.583 101 CASH To record estmated tax paymentbased on 90% of 20X2 current tax payable 38.300 SELLING & ADM IN-MEDICAL BENEFTS e03 36.300 101 CASH To record payment of health insurance 100 000 205 DEBT SECURITES-AFS MARKETABLE 830x3 100.000 101 CASH To purchase Cascade Energy bond in vestment 340 529 MERCHANDISE NVENTORY 21 340 529 CASH 101 To record pu roh a se of cmp and va e nventony ACCOUNTS RECENABLE SALES REVENUE To record sale of in ven tory 105 240 900 501 240 900 COST OF GOODS SOLD-NVENTORY MERCHANDISE NVENTORY 521 154,176 121 154.176 To record cost of in ven torysold. 101 CASH 240,900 105 ACCOUNTS RECENABLE 240900 To record receipt of cash on account br inventory EQUITY SECURITIES-LONG TERM MARKETABLE 201 214,880 101 CASH 214880 To record purch a se of AEP preferred strck shares 101 CASH 8.400 DIVIDEND INCOME-MKT EQ SEC-LT 804 0.400 To record AEP dividend inoome 730 COST OF GOODS SOLD-MERCH INMENTORYWARRANTY EXPENSE MERCHANDSE NVENTORY To record repairofmerdandise inventorysold to austomer 524 25 730 121 1,500 CASH 26 123183 101 1500 INTEREST REVENLE-AFS DEBT SEC 750 To record receipt of semi-annalinterest on AFS band inestment 130,000 SELL ING&ADMIN-PENSION SERMCE COST 616 27 123183 130,000 CASH 101 Torecord payment to pension fund trustee 9,805 INTEREST EXPENSE-NOTE PAYABLE INTERE ST PAYABLE-NOTES To acarue interest expense on note at year end. 28 12/313 751 9865 311 38,667 TRUCK DEPRECIATION VEHICLES-ACCUMULATED DEPRECIATION To record 20X3 deprediation an vehicles 29 12313 701 38,667 182 6,100 |EQUIPMENT DEPRECIATION EQUIPMENT-ACCUMULATED DEPRECIATION To record 20X3 depreaiation an shop equipment 30 12/313 704 6,100 172 AMORT IZATION OF LICENSING COSTS 3,200 31 12/31K3 710 3200 LICENSE 197 To amortze license agreement. 89,913 INCO ME TAX EXPENSE 32 12/31X3 821 89913 INCOME TAK PAYABLE 314 To record in come taxexpense br 20X3 6.760,172 Totals 6,780,172