Background

Castle Home Builders Co$.($CHB$)$ is a public company that was incorporated on January $2,2023.$ The

company began operations on January $2,2023.$ CHB specializes in designing and building high end

homes. The company was founded by Casey Castle, President and CEO. Its business motto is "Our house,

your castle.". In Casey's words, $"$we use the best designers, materials and trades people to create to create

dream homes for our customers".

Building costs can vary enormously depending on the options and features chosen by the customer. A

typical cost for CHB$\text{'}$s homes is about $$1$ million.

"We're doing great" says Casey, "and I expect business to double in size in $5$ years. But something is

bothering me$.$ While business is booming, I suspect that our accounting is not as good as it should be$.$ We

have a dedicated and enthusiastic accounting staff, but they are somewhat inexperienced."

As a public company CHB is required to provide audited financial statements to stakeholders. As a CPA,

you have been hired to prepare the financial statements for the year ended December $31,2023.$

Casey would like you to tell him what accounting items were not treated properly. He wants you to tell

him what the proper accounting treatment should be$.$ Of course, you will have to provide the necessary

correcting journal entries to the accounting department.

"Yes, I can do all that", you respond. $"$Is there anything else that I need to do$"?$

"Yes," says Casey. "First, we need to make sure the Earning Per Share $($EPS$)$ amounts are properly

calculated and presented in the income statement. Our accountant has never had to compute EPS before

and so it's likely that the amount is incorrect. You know how important this number is to our investors.

Second, our business is growing rapidly, and we will need additional capital to expand. We're not sure

whether it would be wiser to take out an additional loan from the bank or whether we should issue more

common shares. It would be helpful if you would indicate what the advantages and disadvantages are for

each option."

"Yes, of course" you respond.

With this mandate you spend the week talking to accounting department personnel. Your findings are

summarized in Exhibit $1.$