Soon after beginning the year end audit work on March 10 at Indigo Company, the auditor has the following conversation with the controller CONTROLLER The year ended March 31 should be our most profitable in history and, as a consequence, the board of directors has just awarded the officers generous bonuses AUDITOR I thought profits were down this year in the industry, according to your latest interim report CONTROLLER Well, they were down, but 10 days ago we closed a deal that will give us a substantial increase for the year AUDITOR Oh, what was it CONTROLLER Well, you remember a few years ago our former president bought stock in Henderson Enterprises because he had those grandiose ideas about becoming a conglomerate For 6 years we have not been able to sell this stock, which cost us $ 2,820,000 and has not paid a nickel in dividends Thursday we sold this stock to Bimini Inc for $ 3,750,000 So, we will have a gain of $ 651,000 ($ 930,000 pretax) which will increase our net income for the year to $ 4,220,000, compared with last years $ 4,030,000 As far as I know, well be the only company in the industry to register an increase in net income this year That should help the market value of the stock AUDITOR Do you expect to receive the $ 3,750,000 in cash by March 31, your fiscal year end CONTROLLER No Although Bimini Inc is an excellent company, they are a little tight for cash because of their rapid growth Consequently, they are going to give us a $ 3,750,000 zero interest bearing note with payments of $ 375,000per year for the next 10 years The first payment is due on March 31 of next year AUDITOR Why is the note zero interest bearing CONTROLLER Because thats what everybody agreed to Since we dont have any interest bearing debt, the funds invested in the note do not cost us anything and besides, we were not getting any dividends on the Henderson Enterprises stock Do you agree with the way the controller has accounted for the transaction If not, how should the transaction be accounted for (If you agree with the way the controller has accounted for the transaction, select No Entry for the account titles and enter 0 for the amounts Credit account titles are automatically indented when the amount is entered Do not indent manually ) Account Titles and Explanation Debit Credit

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Soon after beginning the year-end audit work on March 10 at Indigo Company, the auditor has the following conversation with the controller. CONTROLLER: The year

Soon after beginning the year-end audit work on March 10 at Indigo Company, the auditor has the following conversation with the controller.

CONTROLLER:		The year ended March 31 should be our most profitable in history and, as a consequence, the board of directors has just awarded the officers generous bonuses.
AUDITOR:		I thought profits were down this year in the industry, according to your latest interim report.
CONTROLLER:		Well, they were down, but 10 days ago we closed a deal that will give us a substantial increase for the year.
AUDITOR:		Oh, what was it?
CONTROLLER:		Well, you remember a few years ago our former president bought stock in Henderson Enterprises because he had those grandiose ideas about becoming a conglomerate. For 6 years we have not been able to sell this stock, which cost us $ 2,820,000 and has not paid a nickel in dividends. Thursday we sold this stock to Bimini Inc. for $ 3,750,000. So, we will have a gain of $ 651,000 ($ 930,000 pretax) which will increase our net income for the year to $ 4,220,000, compared with last years $ 4,030,000. As far as I know, well be the only company in the industry to register an increase in net income this year. That should help the market value of the stock!
AUDITOR:		Do you expect to receive the $ 3,750,000 in cash by March 31, your fiscal year-end?
CONTROLLER:		No. Although Bimini Inc. is an excellent company, they are a little tight for cash because of their rapid growth. Consequently, they are going to give us a $ 3,750,000 zero-interest-bearing note with payments of $ 375,000per year for the next 10 years. The first payment is due on March 31 of next year.
AUDITOR:		Why is the note zero-interest-bearing?
CONTROLLER:		Because thats what everybody agreed to. Since we dont have any interest-bearing debt, the funds invested in the note do not cost us anything and besides, we were not getting any dividends on the Henderson Enterprises stock.

Do you agree with the way the controller has accounted for the transaction? If not, how should the transaction be accounted for? (If you agree with the way the controller has accounted for the transaction, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)