For a number of years, Mr. Alserv, a CPA, has performed bookkeeping services for a corporate client, including the recording ofthe journal entries and the posting of the accounts. Mr. Alserv also prepared the tax returns. In partial payment for these services, the client often gave the CPA shares of stock in the company in lieu of cash. In March 19X5, Mr. Alserv sold his accounting practice to Ms. Partserv, another CPA. Mr. Alserv agreed to stay on as a part-time employee. He also agreed to continue handling certain accounts, including the client for whom he kept books. In April 19X5, a local bank notified this client that an audit was required in order to continue loans. Ms. Partserv asked Mr. Alserv to perform the audit, subject to the resolution of two problems:

1. The question of Mr. Alserv’s stock holdings in the client company.

2. The matter of the bookkeeping that Mr. Alserv did for the client.

Mr. Alserv suggested a solution to both problems.

1. Ms. Partserv would sign the audit report as owner and Mr. Alserv would keep his stock as an employee.

2. The client could hire a part-time bookkeeper to record and post the entries. Mr. Alserv’s functions would be confined to such things as making adjusting journal entries, writing up the quarterly payroll reports, and reconciling the bank accounts.

 Required: 

Answer the following questions.

a. Evaluate Mr. Alserv’s arrangement with his client to receive stock in lieu of cash?

b. Evaluate Mr. Alserv’s first suggestion. If you have any objections, suggest alternatives.

c. Evaluate Mr. Alserv’s second suggestion. If you have any objections, suggest alternatives.

d. How, if at all, would your answers to Questions b and c change if the client planned to offer securities to the public?