IRCA for one issue and Retained Earnings statement.

AGUAMAINT, INC.

REQUIREMENT 3

In early December 20X2, Nick Riley called Tom Fasbee to tell him that, in addition to meeting several other criteria, Aguamaint's loan covenants required annual financial statements be submitted to the bank. Regina Sontag at Midwest Regional Bank had reminded Nick that the statements must be reviewed by a CPA and that the review and related report should be comparable to what Lake & Lock had done last year. In addition, the bank requested comparative financial statements, including notes that provide the fair value of all financial instruments and information on major customers. Nick wanted to know if Lake & Lock would do the work again. Tom said his firm would be delighted to do it. Nick then requested that Tom send out the same person. He indicated that Aguamaint's people knew you and had confidence in your ability. Tom indicated that Nick's staffing request would be "no problem."

You, of course, were happy to be called on again. You made arrangements with Jerry Loos to obtain financial statements as early as possible in 20X3. You received Aguamaint's 20X2 financial statements on Wednesday, January 13. A preliminary review revealed the large crew truck investment made earlier in the year. You decided that a quick stop at Linda Durkee's office would be appropriate. Linda represented Lake & Lock on Aguamaint's tax work. You asked Linda how the crew trucks would be depreciated for tax purposes. She indicated that they would be depreciated using the 5-year half year convention Modified Accelerated Cost Recovery System (MACRS) schedule. She also reminded you that the Shop Equipment purchased last year is being depreciated using the 7-year half year convention MACRS schedule. She also noted that she understood that all items classified as property, plant, and equipment are depreciated to the nearest full year for book purposes.

Linda had a number of questions for you on another client, so you completed your conversation over lunch. Before leaving, she reminded you that the MACRS depreciation schedules can be found on the IRS.gov website.

You planned to spend the afternoon reviewing Aguamaint's preliminary financial statements in detail and get questions to Jerry. Jerry then would prepare responses so that you could begin the review.