Hotel Resort Limited is a company that builds world-class resorts in tourist areas around the globe. When the company decided to build a resort in Yellowknife, the federal government agreed to provide a forgivable loan in the amount of $50 million to help fund the construction of the tourist facilities anticipated to cost about $700 million. The Joan will be forgiven provided the tourist facility is operated for at least 15 years. If the resort is closed or sold before 15 years have elapsed, the amount of the loan must be repaid in full, along with interest at the prevailing market rate.
In addition, the federal government also agreed to provide annual funding to cover 70% of the related costs of payroll and room and board for 50 summer students provided the students were hired to work for four full months. The company would receive this annual funding once it proved the costs incurred for these students.
Instructions
Prepare a memo that would be suitable to present to the Hotel Resort Limited board of directors in which you explain how the receipt of the government funding is expected to affect the company's reported total assets and earnings. Also, draft the related note disclosure that would be required.