Summit Company ( Summit) owes ALAN $82,000 for a sports equipment that was purchased in March of 2020. Summit has run into financial difficulties due to dramatic decreases in the selling price of climbing equipment during recent years. In August of 2020 CELIA GOLD (ALAN president) and Gabriel Allon (ALAN controller) established a repayment schedule in which Summit would repay $10,000 per month (plus interest). While the first payment was made in September (bringing the debt down from $92,000 to $82,000), no further payments have been received. (Summit has continued to make small purchases from ALAN on a cash basis.) Your discussion with management indicates that Summit received a going concern modification from its auditors for the year ended 8/30/20 (the audit report was dated 10/22/20). The going concern modification arose due to a question concerning whether Summit can obtain new financing when needed, on June 30, 2021. However, the situation is not entirely bleak for Summits future as layoffs of 1/3 of the companys employees resulted in a situation in which Summit operated at break even for the year ended 8/30/20. Summit has discussed filing for bankruptcy with bankruptcy legal counsel and at this point believes it is unnecessary. But, if it becomes necessary, counsel suggests that creditors shouldnt expect to receive more than 50 cents on the dollar. Management has suggested to you that 70 cents on the dollar is more likely if bankruptcy ensues. Your analysis at the date of both the Summit audited annual statements (8/30/20) and the interim statements (11/30/20) indicates that if bankruptcy is declared, a recovery of 50-65 cents on the dollar (with no amount more probable than another in that range) is likely. Yet, its difficult to know what the situation will be in the future. The sales agreement for the sports equipment allows ALAN to repossess the equipment at any time prior to bankruptcy. But, because the equipment is used and specific to Summits applications, management believes that the equipment could be sold for a (net) of between $20,000 and $30,000. Also, management points out that such an action would not be considered positively by either Summit or a number of other companies that ALAN is attempting to attract as clients. Accordingly, ALAN has resisted this option and does not intend to pursue it at this time. 3 Your analysis of the interim statements (unaudited) reveals that Summit operated at a slight profit during the first quarter and that climbing equipment prices have increased approximately 15 percent. However, experts disagree widely as to future climbing equipment prices as there is some concern that a significant increase in climbing equipment from India may enter the US market. Finally, Summit management, although noncommittal on details, suggests that it believes that it will be able to continue repayments on the debt within the next few months. But your feeling is that it is probable that Summit will be forced to file for bankruptcy. No allowance for this account is currently included in the allowance for doubtful accounts. What, if any, loss reserve (and/or note disclosure) should be reflected in the financial statements?