This is A 3 part question

Introduction

You are an experienced staff accountant working on the audit of RB Johnson Electric Company (the Company) as of and for the year ended December 31, 2022. All of the outstanding common stock of the Company is owned by Barry and Sam Johnson, who are brothers. The Company is engaged in commercial electrical construction on the East Coast of the United States.

The Company was formed on January 1, 1947, and has been in continuous operation since that date. The Company employs approximately 100 people and has normal revenues between $25 and $35 million. The Companys bonding needs and its line of credit agreement, with Truist, require the financial statements to be audited. The Company has a very good Chief Financial Officer, who was at one time a manager with your firm.

Your firm has audited the financial statements for the last 10 years. Adam Silvia is the engagement partner and Joey Sykes is the engagement manager. Based on some staffing issues, you have effectively been assigned the role of engagement senior on this client and you are excited to be working with Joey and having a number of increased responsibilities. The audit has been completed and you and Joey are getting ready to transmit the completed file to Adam for his review.

The Company uses the accrual method of accounting and recognizes revenue on the percentage completion method of accounting. The Companys recent adoption of ASC 606 did not materially impact the Companys revenue recognition. The Companys trial balance, as of and for the year ended December 31, 2022, follows.

Problem 1 (Subsequent Events)

During your review of subsequent events for the period January 1, 2023, through March 15, 2023 (the date the financial statements will be available to be issued) the following matter was noted.

Based on a discussion with the CFO, Barry and Sam Johnson, and a telephone conference with the Companys attorney, you were notified that the settlement of the legal matter, noted during your audit and for which the Company has provided a liability as of December 31, 2022, in the amount of $100,000, will be settled not later than March 31, 2023, for $75,000.

Required:

Indicate whether this matter is a recognized or unrecognized subsequent event.

If appropriate, prepare in the following format the journal entry to record this subsequent event.

Problem 2 (Materiality)

Financial statement materiality for the Companys 2022 audit was set at 5% of total assets as of December 31, 2022. During the audit, management and the auditors have agreed that there is an uncorrected misstatement of $100,000. This misstatement relates to a necessary accrual for incurred but not reported insurance claims under the Companys self-insurance of its health insurance. The waived adjustment follows.

Required

Based solely on financial statement materiality of 5% of total assets, as of December 31, 2022, indicate whether this uncorrected misstatement can be appropriately waived.

BASE YOUR ANSWER ON THE COMPANYS ORIGINAL TRIAL BALANCE AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 2022.

Problem 3 (Materiality)

At your request, the CFO has shared with you Truists proposed terms for renewal of the Companys line credit agreement on March 31, 2023. This agreement, among other things, will require the Company to have equity, as of December 31, 2022, of not less than the amount indicated on the Companys original trial balance, as of December 31, 2022.

Required

Based on the information presented in Problem 2 and the additional information regarding the line of credit renewal, described in Problem 3, indicate whether the additional information presented in Problem 3 changes your opinion with respect to the possible waiver of the identified misstatement of $100,000.

BASE YOUR ANSWER ON THE COMPANYS ORIGINAL TRIAL BALANCE AS OF AND FOR THE PERIOD ENDED DECEMBER 31, 2022.

RB Johnson Electric Company \begin{tabular}{|l|r|r|} \hline \multicolumn{1}{|c|}{ Trial Balance } & & \\ \hline \multicolumn{1}{|c|}{12.31.22} & & \\ \hline & Debit & \multicolumn{1}{c|}{ Credit } \\ \hline Cash & 125,000 & \\ \hline Accounts receivable & 1,500,000 & \\ \hline Allowance for doubtful accounts & & 10,000 \\ \hline Inventory & 20,000 & \\ \hline Contract assets & 700,000 & \\ \hline Contract liabilities & & 575,000 \\ \hline Property and equipment & 1,750,000 & \\ \hline Accumulated depreciation & & 1,500,000 \\ \hline Accounts payable & & 55,000 \\ \hline Line of credit bank & & 75,000 \\ \hline Accrued legal settlement & & 100,000 \\ \hline Common stock & & 50,000 \\ \hline Additional paid in capital & & 100,000 \\ \hline Retained earnings & & 205,000 \\ \hline Revenues & & 29,750,000 \\ \hline Cost of revenues & & \\ \hline Depreciation & & \\ \hline Selling, general, and administrative expenses & 1,050,000 & \\ \hline Legal settlement & 100,000 & \\ \hline & & \\ \hline \end{tabular} \begin{tabular}{|l|l|l|l|} \hline Description & & Debit & Credit \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|} \hline Description & Debit & Credit \\ \hline & & \\ \hline Selling, general and administrative expenses & 100,000 & \\ \hline Accounts payable & & 100,000 \\ \hline \end{tabular} RB Johnson Electric Company \begin{tabular}{|l|r|r|} \hline \multicolumn{1}{|c|}{ Trial Balance } & & \\ \hline \multicolumn{1}{|c|}{12.31.22} & & \\ \hline & Debit & \multicolumn{1}{c|}{ Credit } \\ \hline Cash & 125,000 & \\ \hline Accounts receivable & 1,500,000 & \\ \hline Allowance for doubtful accounts & & 10,000 \\ \hline Inventory & 20,000 & \\ \hline Contract assets & 700,000 & \\ \hline Contract liabilities & & 575,000 \\ \hline Property and equipment & 1,750,000 & \\ \hline Accumulated depreciation & & 1,500,000 \\ \hline Accounts payable & & 55,000 \\ \hline Line of credit bank & & 75,000 \\ \hline Accrued legal settlement & & 100,000 \\ \hline Common stock & & 50,000 \\ \hline Additional paid in capital & & 100,000 \\ \hline Retained earnings & & 205,000 \\ \hline Revenues & & 29,750,000 \\ \hline Cost of revenues & & \\ \hline Depreciation & & \\ \hline Selling, general, and administrative expenses & 1,050,000 & \\ \hline Legal settlement & 100,000 & \\ \hline & & \\ \hline \end{tabular} \begin{tabular}{|l|l|l|l|} \hline Description & & Debit & Credit \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline & & & \\ \hline \end{tabular} \begin{tabular}{|c|c|c|} \hline Description & Debit & Credit \\ \hline & & \\ \hline Selling, general and administrative expenses & 100,000 & \\ \hline Accounts payable & & 100,000 \\ \hline \end{tabular}