PragmaTech (PT) recycles plastic and then sells it to manufacturing companies to produce toys, household items (such as coffee makers), and so on. PT was founded in 1998 by Joseph D'Angelo. Joe has maintained full ownership of PT, deciding not to take it public when so many other recycling companies were going public. While Joe is the only shareholder, PT does have a substantial bank loan and the bank requires an annual audit of PT's financial statements and PT follows ASPE. Joe has a background in operations but is also very strong in accounting.

It is now early 2022 and you are the controller for PT, having been hired just days before the December 31, 2021, year end. In October 2021, Joe decided to step away from the business and spend more time at his second home in South Carolina. In order to ensure there was someone at the PT facility to oversee production and day-to-day operations, Joe hired a chief operating officer, Robert Fancy. Rob's background is sales and operations, and he has limited knowledge of accounting. Rob tried to run the accounting side of PT when he was hired but determined that it wasn't his area of strength. He received Joe's permission to hire you to help him with accounting for some of the activities in preparation for year end, and to help him understand the accounting function better.

1.

During 2021, Rob worked hard to attract new business. In November, he managed to sign a con- tract with Victoria Springs (VS) that would see PT selling 500,000 kg of recycled plastic to VS over the next two years at a price of $2.50 per kilogram. Rob is quite excited about the contract and the fact that VS paid $200,000 in advance of the start of production. The amount was received December 1, 2021. As of December 31, 2021, PT had produced and delivered 50,000 kg of recycled plastic to VS. You noted to Rob that it appears that the $200,000 deposit was recorded as revenue. Rob has asked you if there is anything wrong with that entry. If there is, he would like to know why and for you to make any correcting entry that you feel is appropriate.

2.

As a means of cutting costs, Rob is considering revising the presentation of the financial statements to show just revenues and expenses instead of the current presentation of showing a full cost of goods sold amount and similar items on the statement. Rob is questioning the purpose of presenting such detail in the financial statements. "You and I know what is going on in these books, why do we need to show all this stuff?" He has also asked you to include in your report reasons why financial statements are prepared annually.

Comment on what is happening in each scenario and provide journal entries if necessary.