REQUIREMENT 5

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.Jerry 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)(ii). 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 journal entries and financial statements prepared by Jerry Loos are attached.Review these data and list of additional information needed from Jerry.Be as specific as possible and phrase requests in the form of questions as they normally would be asked of a client. it also be prepared to explain the reasons for asking specific questions. As you determine the data needed, be aware that once again, Jerry has asked the to prepare the statement of cash flows, statement of changes in stockholders' equity, financial statement notes, and earnings per share disclosures. He also reminded that the bank wants comparative statements and requires the fair value of all financial instruments and information on major customers be disclosed.

\f11 12 13 14 15 16 17 18 19 20 21 6]30/X3 631 611 612 609 615 607 101 562 601 101 553 101 129 564 302 302 314 101 314 101 603 101 205 101 121 101 105 501 521 121 SELLING & ADMINISTRATIVEOTHER SELLING & ADMIN-OFFICERS SALARIES SELLING & ADMIN-OTHER SALARIES SELLING & ADMIN-PROFESSIONAL FEES SELLING & ADMIN-PAYROLL AND OTHER TAXES SELLING & ADMIN-SUPPLIES CASH To record various S&A expenses. SERVICE COSTS-INDIRECT-SHOP UTILITIES SELLING & ADMIN-UTILITIES CASH To record utilities expense. SERVICE COSTS-DIRECTFUEL CASH To record fuel expense. SUPPLIES ON HAND SERVICE COSTS-lNDIRECTSUPPLIES ACCTS PAY-SUPPLIERS-OTHER COSTS To record supplies expense. ACCTS PAY-SUPPLIERS-OTHER COSTS INCOME TAX PAYABLE CASH To record payments on account and income tax payment. INCOME TAX PAYABLE CASH To record estimated tax payment based on 90% of 20X2 current tax payable. SELLING & ADMIN-MEDICAL BENEFITS CASH To record payment of health insurance. DEBT SECURITIESAFS MARKETABLE CASH To purchase Cascade Energy bond investment. MERCHANDISE INVENTORY CASH To record purchase of pump and valve inventory. ACCOUNTS RECEIVABLE SALES REVENUE To record sale of inventory. COST OF GOODS SOLD-INVENTORY MERCHANDISE INVENTORY To record cost of inventory sold. 8,580 1 56,000 34,000 6,984 88,043 1 3,600 21 ,675 4,335 63,115 5,778 45,724 50,389 70,187 65,583 36,300 100,000 340,529 240,900 154,176 307,207 26,010 63,115 51,502 120,576 65,583 36,300 100,000 340,529 240,900 154,176 \fAGUAMAINT, INC. STATEMENT OF INCOME FOR "IT-IE YEAR ENDING DECEMBER 31, 20x3 20x3 Service revenue $ 1,953,600 Sales revenue 240,900 Total revenue 2,194,500 Cost of services sold 925,527 Cost of goods sold 154,906 Cost of goods sold 1 ,080,433 Gross prot 1 ,1 14,067 Operating expenses Selling and administrative 635,979 Depreciation and amortization 47,967 Total operating expenses 683,945 Other income (expense) Dividend income 6,400 Interest revenue (expense) (8,365) Total other income (expense) (1,965) Operating income before income taxes 428,157 Income tax expense (89,913) Net income $ 338,244 AGUAMAINT, INC. BALANCE SHEET DECEMBER 31, 20x3 ASSETS 20x3 CURRENT ASSETS Cash 35 1 7,31 9 Accounts receivable 203,000 Allowance for doubtful accounts (19,500) Inventory 185,623 Supplies on hand 13,955 Prepaid insurance 267 Total Current Assets 400,663 PROPERTY, PLANT, AND EQUIPMENT Equipment 42,700 Accumulated depreciation-equipment , (18,300) Vehicles 232,000 Accumulated depreciation-vehicles (77,333) Total Property, Plant, and Equipment 179,066 RIGHT OF USE ASSETS Operating lease-building 288,537 Total Right of Use Assets 288,537 INTANGIBLE ASSETS License 38,400 Total Intangible Assets 38,400 OTHER ASSETS Long-term investments 314,880 Deferred income tax 1 1 ,174 Total Other Assets 326,054 TOTAL ASSETS $ 1,232,721 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES Accounts payable $ 13,367 Wages payable 20,164 Interest payablenote 8,825 Income tax payable 24,330 Short term portion of long term debt 47,547 Short term portion of operating lease payable 39,000 Deferred contract revenue 45,800 Total Current Liabilities 199,033 LONG-TERM LIABILITIES Note payable 1 12,906 Operating lease payable 210,537 Total Long-term Liabilities 323,443 Total Liabilities 522,476 STOCKHOLDERS' EQUITY Common stock 150,000 Retained earnings 560,245 Total Stockholders' Equity 710,245 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,232,721