TRICKLEHAMMER INC.

Tricklehammer Inc.(TI) is a private company incorporated 20 years ago dedicated to the construction of commercial property and selling tools related to the construction business. They have experienced financial difficulties over the past year, and need to obtain additional financing. They estimate a small profit before taxes of $23,000 in 2009, based on a preliminary draft of their financial statements prepared by the administrative staff. Due to the uncertainties of their financial position, creditors have insisted on covenants to maintain their debt-to-equity ratio at or below 2:1. Dividends are not allowed to be paid to shareholders until the loans have been repaid. Management has a bonus based on net income.

In the past the objective of the private company has been tax minimization. However as soon as their financial position improves they would like to have a public share offering.

It is January 2010. TI’s fiscal year-end is December 31, 2009. The President of TI Bud Tricklehammer, an old school friend and the son of the company’s founder, has provided you (CGA) with the following accounting issues facing the company for 2009. “Hey, I am just a bricks and mortar man”, he said, shaking you warmly by the hand, “you college kids know how to cope with the new global environment with all these new fangled rules that they keep throwing at us. Peter, my head clerk, is very hard-working and intelligent, but he just cannot keep up with all the changes that have taken place in the past few years. Aunt Agatha helps as much as she can. In fact she has given me an interest free loan of $200,000 to help us along. I would have to pay the banks at least 5%. But she is facing a tightening of her financial position, and I will have to return her money in a year or two.” He would like you to prepare a report outlining alternative accounting policies and your recommendations.

The following information has been collected by you:

TI does not…