Assignment 1
7-16
(Accepting the engagement) Sunny Energy Applications Co. sells solar-powered swimming pool heaters. Sunny contracts 100 percent of the work to other companies. As Sunny is a new company, its balance sheet has total assets of $78,000, including $24,000 of “stock subscriptions receivable.†The largest asset is $42,000 worth of “unrecovered development costs.†The equity side of the balance sheet is made up of $78,000 of “Common Stock Subscribed.â€
The company is contemplating a public offering to raise $1 million. The shares to be sold to the public for the $1 million will represent 40 percent of the then issued and outstanding stock. There are two officer-employees of the company, Mike Whale and Willie Float, former officers of Canadian Brass Co. Float is being sued by the SEC for misusing funds raised by Canadian Brass in a public offering. The funds were used as compensatory balances for loans to a Physics Inc. Physics Inc. was controlled by Float and is the predecessor for Sunny Energy Applications.
Canadian Brass is being sued by the SEC for reporting improper (exaggerated) income. Float was chief executive at the time. Many organizations are engaged in researching the feasibility of using solar energy. Most of the organizations are considerably larger and financially stronger than Sunny Energy. The company has not been granted any patents that would serve to protect it from competitors.
Required
Assignment 2
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