Discussion Issue 3 (20 points)

Discuss all issues that concern you after reading the following "Related Party Transactions" note disclosure of "the Corporation" which is a wholly-owned subsidiary of "Partners".

"In December 2008, Partners entered into a lease arrangement for office space for the Corporation, IVA, and CFHC. The lease commenced upon possession of the office space in May 2009 and expires in September 2021. The Corporation, IVA, and CFHC are charged by Partners for their proportionate share of the lease payments. The rental expense of $106,000 and $129,000 was included as a component of the management fee charged to the Corporation during 2020 and 2019, respectively.

Partner's future minimum rental payments under this noncancelable lease agreement on December 31, 2020 total $80,000 for the year ending December 31, 2021.

Partners charged the Corporation a management fee of $2,233,000 and $2,167,000 in 2020 and 2019, respectively, which is included in general and administrative expenses in the statements of activities and changes in net assets.

The Corporation provides advances to Partners, IVA, and Consultants for working capital purposes. Advances to Partners are noninterest-bearing and advances to IVA and Consultants bear interest at 4.5 percent. There are no scheduled repayment terms. Total advances to these affiliates as of December 31, 2020 and 2019 were $1,544,000 and $1,350,000, respectively. The allowance for doubtful accounts on these affiliate advances was $500,000 on December 31, 2020, and 2019.

In 2020, Partners received a loan pursuant to the Paycheck Protection Program (PPP), administered by the U.S. Small Business Administration. The PPP was authorized in the CARES Act. Partners received proceeds of $749,000 from this loan, of which $344,000 related to the Corporation. No cash was transferred to the Corporation and no amounts were recognized by the Corporation for the loan in 2020. Partners believe that it has met the PPP's loan forgiveness requirements and therefore anticipates applying for forgiveness in 2021. If any portion of the loan to Partners is not forgiven, Partners will be required to repay that portion, plus interest."