Question
Please answer the following: MM, CPA's has been hired to audit Spear's 2019 financial statements. Spear is engaged in the business of buying and selling
Please answer the following: MM, CPA's has been hired to audit Spear's 2019 financial statements. Spear is engaged in the business of buying and selling computers and related equipment. Spear has adopted a calendar year for accounting purposes. While conducting the audit, MM reviewed the following transactions that occurred in December 2019. (1) On 12/20/19, Spear sold five computers to Pica. The contract required Spear to ship the computers by common carrier. The shipping terms were FOB - Spear's loading dock. The computers were shipped on 12/30/19 and on 01/01/2020, while the computers were in transit, the common carrier was in an accident and all 5 computers that were sold to Pica were destroyed. When Pica was contacted, Pica reviewed a copy of the common carrier's bils of lading and discovered that the destroyed computers were not the models that Pica had ordered. (2) On 12/21/19, Spear bought and took delivery of 155 computers from Larson for $250,000. Larson had bought the computers from Xeon Company. When Larson paid Xeon, Larson paid with a check that was dishonored by the bank due to insufficient funds. Spear had no knowledge that Larson's check was dishonored. (3) On 12/22/19, Spear entered into a "sale on approval" contract with Rust Company for 20 high end computers. Rust is engaged only in the sale of furniture. The contract required Rust to notify Spear within 15 days after delivery if Rust was not going to keep the computers. Rust took delivery of the computers on 12/24/19. As of 01/05/2020, Rust had not indicated whether to keep the 20 computers. PLEASE ADDRESS THE FOLLOWING ISSUES: 1. As of 12/31/19, which of the parties bear the risk of loss for the computers with regard to the 12/20/19 deal with Pica and to the 12/22/19 transaction with Rust? 2. As of 12/31/19, which of the parties has title to the computers with regard to the 12/21/19 transaction with Larson and the 12/22/19 transaction Rust. 3. What rights do the general creditors of Rust have to the computers delivered to Rust per the 12/ 22/19 agreement with Spear. CITE THE APPROPRIATE CODE SEDCTONS
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