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Ace inc. produces electronic components for sale to manufacturers of radios, television sets, and digital socind systems. In connection with her examination of Ace's financial statements for the year ended December 312026. Gloria Rodd. CPA, completed feld work.2 weeks aga. Ms, Rodd now is evaluating the significance of the following items prior to preparing her auditor's report. Except as notech, none of these iterns have been disclosed in the financial statements or notes, Item 1: A 10 year loan agreement, which the compary entered into 3 yoars ago, provides that dividend payments may not exceed net income earned after taxes subsequent to the date of the agreement The balance of retained carnings at the date of the foan agreement was $420,000. From that date through December 31,2026 , net income after taxes has totaled $570,000 and cash dividends have totaled $320,000. On the basis of these data, the staft ariditor assigned to this review concluded that there was no retained earnings restriction at December 31,2026 . Item 2: Recently Ace interrupted its policy of paying cashidividends quartelly to its stockholders. Dividends were paid regularhy through 2025, discontinued for all of 2026 to finance purchase of equipment for the companys new plant, and resumed in the first quarter of 2027. In the annual report, dividendpolicy is to be discussid in the picsident's letter to stockholders. Item 3: A major electronics firm has introduced a line of products that will compete directly with Ace's primary line, now being produced in the specially designed new plant. Because of manufacturing innovations, the competitor's line will be of comparable quality but priced 50% below Ace's line. The competitor announced its new line during the week following completion of field work. Ms. Rodd read the announcement in the newspaper and discussed the sitwation by telephone with Ace executives. Ace will meet the Iower prices that are highenough to cover variable manufacturing and seling expenses but will permit recovery of only a portion of froed costs. Item 4: The compary's new manufacturing plant building, which cost $2,400,000 and has an estimated life of 25 years, is leased from Wichita National Bank at an annual rental of $600,000. The company is obligated to pay property taxes, insurance, and maintenance. At the conclusion of its 10-year noncancelable lease, the company has the option of purchasing the property for $1. In Ace's income statement, the rental payment is reported on a separatelline For each of the above items, discuss any additional disclosures in the financialstatements and notes that the auditor should recommend to her client. (The cumulative effect of the four items should not be considered.)

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