ClubLoop Corporation (CL) is a large owner, operator, and developer of golf courses and resorts. The company is privatel

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ClubLoop Corporation (CL) is a large owner, operator, anddeveloper of golf courses and resorts. The company is privatelyowned by several wealthy individuals. During the current year,according to the draft financial statements, revenues increased by7 .2% and net operating income increased by 13% to $22.5 million.Net income dropped from $2.9 million to $822,000. The decrease waslargely due to two events: a change in accounting policy and costsrelated to the settlement of a lawsuit. One of the company'sobjectives is to always ensure that capital resources are readilyavailable to meet approved capital expenditures and to takeadvantage of growth opportunities. According to the draft year-endfinancial statements, the company has current assets of $12 millionand current liabilities of $28 million, resulting in a workingcapital deficit. Included in the current liabilities are long-termdebts that are currently due. The company is working with thefinancial institutions in question to renew or replace thesefacilities. CL has received unsolicited expressions of interestfrom several financial institutions concerning these facilities,and management believes that these facilities will bereplaced-hopefully before the current financial statements areissued. The company owns most of the land on which CL's golfcourses are developed. Currently, the company follows a rigorous"weed and feed" program in order to keep the grass on the golfcourses in top shape. The chemicals in these fertilizers,herbicides, and insecticides are felt by some people in the localcommunity to be toxic to the environment. The company has met withseveral community groups and has agreed to study the issue further.In a current meeting of the board of directors, the CEO committedthe company to spending $1 million to limit any potential damage.As at year end, none of this amount has yet been spent. There is aconcern that the community groups are going to launch legalproceedings and the company feels that this move will help CL'sposition if there ends up being a lawsuit. Part of the money is forlandscaping to limit the spread of the sprayed chemicals and partof it is for advertising to promote the company as a good corporatecitizen. The company is currently developing new golf courses. Alldirect costs related to the acquisition, development, andconstruction of these properties, including interest and managementcosts, are capitalized. For one of the new locations, which wasjust purchased and developed in the current year, the company hasrun into a problem. After CL spent several million dollars ondevelopment, the planned golf course is being blocked byenvironmental groups. The costs to develop the land have beencapitalized as previously mentioned, on the basis that they wouldbe recoverable from future membership revenues. However, thecompany has now decided to sell the land to a real estatedeveloper. On July 1, the government tax department issued noticesof assessment to the company regarding a dispute over therecognition of revenues. Although the outcome of an appeal of theassessment cannot be determined, the company believes that it willowe $8.7 million if its appeal is unsuccessful.
Instructions Adopt the role of the company's auditor and preparean analysis of the financial reporting issues. Note: Please do notprovide the same answer which is available in answers again. I amasking this question for 2nd time. The answer which is alreadythere doesn't provide adequate explanations about the financialissues. Thank you