Reference no: EM132463881

Accounting Question

• One of your favorite clients, Cindy Roger, President of ABC Company, just called with a couple of ideas to run by you. ABC company maintains a profit-sharing plan fully funded by employer contributions. Over the years, the plan assets have grown and are now in excess of $4 million. Cindy is the named Plan Administrator.

Question 1: Cindy tells you that he personally bought some undeveloped real estate a couple of years ago in Reston near the new Wiehle Avenue Metro station. Cindy figures the property's value will sky rocket in a couple of years now that the Silver Line is open and he would like to sell the property to the plan as a way to enhance the retirement security of his company's employees. Cindy says an independent appraiser has estimated the value of the land at $3 million, and he would like to sell the land to the plan at its appraised value. He also tells you this will be great for the business because it will provide him with cash to invest ABC Company thereby providing greater job security for the plan participants and providing a more secure retirement for his employees. He wants to make sure there are no problems. Do you see any problems with Cindy's proposal?

Question 2: Would your advice vary if she called you after she had already sold the land to the plan?

Question 3: As part of the conversation, Cindy also mentioned that one of the other benefits of this sale is that she can finally pay off the $500,000 loan the plan made to her in January 2015. The loan is at 4% which is a reasonable rate of interest. Any thoughts?

Question 4: One last question from Cindy. An opportunity just came up to invest in a closely held electrical supplier that is likely to go public in two years. The minimum investment is $100,000. Cindy tells you she has $60,000 to invest, and she is going to get the plan to invest $40,000. Again, she thinks it is a great investment. Any thoughts?