Q: It appears that the Site Development Fees incurred with Clovis Supply, Ltd. are the basis of the Accounts Payable to Clovis. Would that payable not be eligible for conversion to a construction loan?
Q: My thought is that preliminary site cost increased $4.620 million in 2014 would be funded by construction loans. Please discuss.
A: We, too, would expect a construction loan would take out the accrued payable, but there is no information to the effect that the company has or is putting such financing in place. If Mr. Schumacher has difficulties in arranging a takeout loan or permanent financing for this Sequoia Properties expenditure, then the partnership is on the hook for payment to Clovis.
Q: The appropriate solution to Poll Question 7 can't be “All of the above”. The accountant compiled the financial statement. Please explain.
A: Poll Question 7 is as follows:
“The apparent under-reporting of depreciation expense suggests that:
- Accrual profit in 2014 was actually far less than reported.
- Sequoia Properties’ management manipulated accrual profit in 2014.
- Sequoia Properties’ accountant paid little attention to the financial statement numbers.
- All of the above.
- None of the above.”
The correct answer is “All of the above”.
Compiled financial statements indicate that the accountant simply takes what he or she receives from the client and puts the information into a standard GAAP format without running any process tests or verifying any of the amounts. The accountant’s inaction on this line item indicates that he either chose to ignore the recorded depreciation expense or that he paid little attention to the financial statement numbers provided by Sequoia Properties, Ltd.