Hoyle Part1 - Young Manufacturing. It will be paid...

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September 25, 2010 David Smith CPA Partner 28 Millport Road Lancaster PA 17602 Dear David Smith: Our company, Simons Software, recently entered into a contract with Young Manufacturing, a small company whose engineers are developing a program that we believe will be vital to our growth in the industry. We would like to help Young Manufacturing with this development so that once the program is perfected, we can then purchase it for our own use. The contract states that we will provide compensation for all employee and overhead business costs of the specific department responsible for this program. We will be able to give some direction of the activities in this department, however, compensation will be based solely on the “good faith efforts” of
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Unformatted text preview: Young Manufacturing. It will be paid regardless of whether or not the product is developed to our specifications. We have no equity in Young Manufacturing; however the contract does give us a seat on their board of directors. As the financial controller, the problem I face is how to properly disclose this contract on our financial statements. The problem we face is how to properly disclose this contract on our financial statements. How should we handle this relationship? Do we need to consolidate this entity on the financial statements? I appreciate your professional opinion and guidance on this matter. Please respond promptly and thank you for your time. Sincerely, Natalie Simons Financial Controller...
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