Chester Games Corporation (CGC) is in the on-line gaming industry, in which there are many short-lived and failed games, but also potential for high profit. The economic challenge is to carve out a stable and growing revenue stream in an unstable and crowded market, especially since the games are offered free. Reporting objectives are revenue and profit growth, to support an IPO that is the wish of the venture capitalists. In particular, CGC has not met revenue projections this year, as evidence of the high risk in the industry, and has a preliminary operating loss of $404,000 in 2013. CGC also reported a loss of $209,000 in 2012. Despite this, the company has positive equity of $1.3 million, and this suggests a fairly strong balance sheet given that total assets are $1.8 million.

As a recently qualified professional accountant employed by CGC, the student is asked to provide advice to...

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