Lakeview Development Corporation was formed on January 2, 19X0, to develop a vacation-recreation area upon land purchased the same day by the corporation for \(\$ 100,000\). The corporation also purchased for \(\$ 40,000\) an adjacent tract of land which the corporation plans to subdivide into fifty building lots. When the area is developed, the lots are expected to sell for \(\$ 10,000\) each.

The corporation borrowed a substantial portion of its funds from a bank and gave a mortgage on the land. A mortgage covenant requires that the corporation furnish quarterly financial statements.

The quarterly financial statements prepared at March 31 and June 30 by the corporation's bookkeeper were unacceptable to the bank officials. The corporation's president now offers you the engagement of preparing unaudited quarterly financial statements. Because of limited funds, your fee would be paid in Lakeview Development Corporation common stock rather than in cash. The stock would be repurchased by the corporation when funds become available. You would not receive enough stock to be a major stockholder.

{Required:}

a. Discuss the ethical implications of your accepting the engagement and the reporting requirements which are applicable if you should accept the engagement.

b. Assume that you accept the engagement to prepare the September 30 statements. What disclosures, if any, would you make of your prospective ownership of Corporation stock in the quarterly financial statements?

c. The president insists that you present the fifty building lots at their expected sales price of \(\$ 500,000\) in the September 30 unaudited statements as was done in prior statements. The write-up was credited to Contributed Capital. How would you respond to the president's request?

d. After accepting your unaudited September 30 financial statements, the bank notified the corporation that the December 31 financial statements must be accompanied by a CPA's opinion. You were asked to conduct the z:ydit and told that your fee would be paid in cash. Discuss the ethical implications of your accepting the engagement.